Full text of "Annual report"

BOSTON PUBLIC LIBRARY

3 9999 06588 168

GOVDOC

NUTS AND BOLTS

iS^T^

OCT 2

BasTON Water and
Sewer CnMiviissiDN

Annual Report 1993

■^fd

»4,

t-Vfi, I

19 9 3

The year 1 993 was one of challenge and accom-
plishment for the Boston Water and Sewer
Commission. A sluggish economy and a continu-
ing need to pay for the Boston Harbor Cleanup
Project placed increasing demands on our rate-
payers. Last year we responded to those demands
with a coordinated cost reduction plan while
maintaining our emphasis on the efficient, daily
delivery of high quality water and wastewater
services to the residents, businesses, and visitors
of the City of Boston. This plan involved the
continued implementation of a "nuts and bolts"
strategy, including the rigorous review and dili-
gent improvement of all aspects of our operations.
These management improvements included the
following:

H The Commission saved ratepayers approximately
$6.4 million through the timely refinancing of
bonds.

■ The BWSC managed the installation of state-
of-the-art meter reading devices for over 1,500
of our largest-user accounts, eliminating the
cost of entering buildings to read meters.

m The Commission converted from quarterly to
monthly billing for all of its accounts, reducing
its need to finance working capital and simpli-
fying the household budgeting process for our
customers.

B The BWSC installed tamper-proof locking
devices on 940 fire hydrants to help prevent
unbilled water loss.

a The Commission developed more effective
litigation strategies for collecting delinquent
accounts.

B The BWSC identified and developed num-
erous state and federal funding opportunities
which helped save millions of dollars.

■ The Commission initiated a Rate Relief
Campaign which coalesced over 600 customers
to lobby for and obtain additional state and
federal funding for rate relief.

Acting Executive Director Patricia A. Fahy
former Executive Director Robert LjOialek

I am proud to report that cost reduction and
management efficiency measures such as these
proved to be extraordinarily beneficial to our
ratepayers. As a direct consequence of these
efforts, we ended the year in excellent financial
shape -resulting in no rate increase for 1994.

Each year, the Commission is faced with tough
challenges. During 1993, as in previous years,
our employees rose to meet these challenges. Our
overall achievements are the sum total of hun-
dreds of day-to-day accomplishments on the part
of our employees. The professionalism, know-
how, creative problem-solving, and hard work of
those employees were the vital "nuts and bolts"
of our successes during 1993 -successes that laid
the groundwork for continuous improvements in
service to our ratepayers in years to come.

Patricia A. Fahy, /

Acting Executive Director /

from left to right

Victoria L. Williams

Mary C. Nee

BWSC Board of Commissioners

BWSC Delivers

In 1993, the BWSC delivered on its rate relief
goals by containing costs, improving operations,
and identifying partners to share in the cost of
cleaning up Boston Harbor. Following are a few
highlights of our 1993 activities:

A PLAN FDR FISCAL HEALTH

As a direct result of a strict cost control program,
the Boston Water and Sewer Commission ended
1993 on soUd financial ground, allowing us to
freeze rates for 1994. Our excellent state of fiscal
health is due to an integrated, comprehensive plan
for management based on fiscal responsibility and
accountability. The components of the plan -
many of which are described in this report -are
now in place, resulting in a strong, coordinated
^strategy to ensure the long-term continuation of
the agency's fiscal health.

STATE DEBT SERVICE ASSISTANCE

In 1993, the Boston Water and Sewer Commis-
sion secured $6.5 million in debt service assistance
from the Commonwealth of Massachusetts for
sewer rate relief the first-ever allocation of its type.
Funding for the BWSC included over $600,000
in direct assistance and $5.9 million in indirect
assistance through the Massachusetts Water
Resources Authority (MWRA). The MWRA, the
agency from which the BWSC buys its water and
wastewater services, received a total allocation of
$19 million. Approximately $5.9 million of this
allocation has been passed on to the BWSC
through a reduction in wholesale sewer rates. The
Commonwealth's Sewer Rate Relief Fund was
established by the Massachusetts Legislature to
mitigate rate increases due to debt service obliga-
tions for sewer construction projects.

STATE REVaLVINE LaAN FUND

Massachusetts' State Revolving Loan Fund, a
low interest loan fund for wastewater construction
projects, effected its first pooled financing in 1993.
The Commission was a major participant in this
transaction, and as a result our ratepayers will ben-
efit from savings of $ 1 1 .4 million.

Bond Refinancings

The Commission took advantage of the economy's
low interest rates to execute a refunding bond
issue totaling approximately $101 million, reducing
the Commission's future debt service obligations
by approximately $6.4 million.

Staff Reductions

With the implementation of an Early Retirement
Incentive Program and other efficiency measures,
the BWSC continued to reduce its workforce in
1993. The Commission's budget-cutting efforts
have resulted in the fourth consecutive year of
personnel cutbacks which have translated into
significant savings for BWSC ratepayers. The
Commission will continue to explore ways to
streamline its workforce in 1994.

Rate Relief Campaign
The BWSC strongly believes that rate relief efforts
should involve our ratepayers, the people who
ultimately bear the burden of the costs associated
with the Boston Harbor Cleanup Project. In
1993, the Commission initiated a Rate Relief
Public Information Campaign, which included
educational fact sheets, billing inserts, brochures,
summaries of pending legislative initiatives, a
24-Hour Rate Relief Information Hothne, and a
highly effective Legislative Letter Writing Cam-
paign. Over 600 BWSC customers participated in
the campaign.

from left to right

Ronald A. Catena

Director of Public Affairs

James E. Schultz

Director of Facilities and Support Services

Henry c. Luthin
General Counsel

Details

The BWSC continually seeks new and better ways
to improve the efficienq? of its operations. Our
staff is committed to the "nuts and bolts" of our
business - and recognizes that the way to achieve
our fiscal, public service, and environmental goals
is through strict attention to details. We believe
this attitude forms the foundation of our current
fiscal stability, and will allow us to provide even
better service to our ratepayers in years to come.

Improved Cdluectidn Program
The BWSC has dramatically improved its collec-
tion rate in recent years. Through the implemen-
tation and continued use of an "Integrated
Collections Program," the Commission success-
ftilly reduced the average collection period for its
account receivables by 63% since 1990. The
improved collections also resulted in a decrease
in net receivables of $5.3 million, despite an 11%
increase in water and sewer rates during 1993.

Monthly Billing

In 1993, the BWSC converted from quarterly
to monthly billing for all of its 87,000 accounts.
This conversion saved ratepayers money by
enabling the Commission to reduce its need to
finance working capital through the rate structure.
It also put the BWSC on the same billing sched-
ule as other major Boston utilities, thereby simpli-
fying the household budgeting process for our
customers. With this billing frequency change,
Commission staff mailed out and processed over
one million bills in 1993.

Minority and Women Hiring
In 1993, the Commission made substantial
advances toward its long-range goal to achieve a
workforce that represents the diversity of the City
of Boston and to increase opportunities for
minorities and women within the Commission.
Our efforts in this area during 1993 raised the
proportion of minorities and women employees to
22% and 21%, respectively. Contract awards to
MBE and WBE vendors increased by 59% in 1993.

Improved Customer Service
Improving community outreach and customer
service was a continuing priority at the Boston
Water and Sewer Commission in 1993. The
Commission held over 160 community site visits
for the purpose of allowing customers an opportu-
nity to pay their bills or discuss concerns in per-
son. Over 50 pubhc informational meetings were
also held in neighborhoods throughout the city to
brief local community organizations and public
officials about BWSC activities and issues in their
areas. The Commission also distributed pertinent
press releases and billing inserts, as well as pubhc
education fact sheets and brochures sent to our
customers, schools, and various civic and neigh-
borhood organizations.

To improve customer service, the Commission has
in place an automatic call distribution system that
ensures prompt responses to all customer inquiries
regarding billing explanations, service requests, and
other issues. The new BWSC system queues all
incoming calls, provides "hold" messages, and
allows supervisors to monitor calls, further ensuring
that high quality service is provided.

Service

The BWSC contributes greatly to the health and
livelihood of the 574,000 residents of Boston and
millions of people who work in or visit the city each
year. Planning, designing, building, and maintain-
ing the Commission's vast infrastructure requires
highly-trained people who understand and partici-
pate in the agency's responsibilities as a provider
of essential services. Our engineers and operations
people are among the best in the business. We're
available 24 hours a day, 365 days a year.

PREVENTfVE MAINTENANCE

Every day, the Boston Water and Sewer Commis-
sion provides over one million people with water
that is among the cleanest in the country. To
most people, a turn of the faucet or a flush of the
toilet is all that is required to operate the water
and sewer system. But maintaining a system that
includes 1,182 miles of water pipes, 1,340 miles
of sewer pipes, 12,900 fire hydrants, 16,900 water
gates, and 46 permitted combined sewer overflow
outfalls is an extraordinarily complex task.
Through an aggressive preventive maintenance
program, the BWSC can extend the useful life of
the system, save in repairs, and reduce the number
of emergencies. As part of this continuing program,
the BWSC maintenance staff had accomplished
the following tasks by the close of 1993:

@ Replaced 13,526 linear feet of sewer
or drain pipe

@ Inspected 12,295 fire hydrants

■ Replaced 1,570 lead service pipes

■ Replaced or raised to grade 2 1 2 castings

■ Inspected 1 ,097 tidegates

■ Repaired 2,153 leaks and breaks

■ Cleaned and inspected 12,548 catchbasins

■ Reconstructed 545 catchbasins

■ Inspected 45,121 manholes

■ Sealed 615 joints in the sewer and drain system

■ Removed 10,715 cubic yards of debris
from sewers, drains, and meter boxes

Automatic Meter Reading

Utilizing state-of-the-art technology, the BWSC
managed the installation of automatic meter
reading devices for over 1,500 of its largest-user
accounts in 1993. These accounts are now read
automatically though telephone lines linked to a
BWSC computer. Automatic meter reading
reduces Commission operating costs for on-site
meter reading.

Unaccounted-FDR Water
In 1993, the BWSC continued its aggressive
campaign to reduce system water loss, known
throughout the industry as "unaccounted-for
water." Unaccounted-for water is the difference
between the amount of water purchased from the
MWRA and the amount that is billed to BWSC
ratepayers. The BWSC has achieved significant
reductions in its unaccounted-for water percent-
age, from 50% in 1977 to lG°k in 1993. This
success was largely due to a nationally-recognized
leak detection and repair program and recent
meter downsizing efforts.

In 1993, the BWSC's leak detection and repair
program field crews surveyed over 1,180 miles of
water main for leaks. Their efforts resulted in the
identification and correction of over 200 system
leaks, estimated to be losing 4.5 million gallons
of water a day.

Meter downsizing efforts have also contributed
substantially to reducing unaccounted-for water.
By replacing large water meters with smaller ones,
the BWSC can better account for the water used
at low flows that does not often register on the
large meters. Since the start of the meter down-
sizing program in 1990, over 2,300 meters have
been downsized, resulting in the accounting of
1.3 million gallons per day of previously unbilled
water use.

Reduction in Water Usage
The Commission's continuing efforts to search
actively for and repair leaks and to downsize
meters have resulted in a dramatic lowering of the
amount of water that the BWSC purchases from
the MWRA each year. Water usage in the city has
been reduced by 34% since 1977, although popu-
lation has declined by only 2% since that time.

fi-om left to right

John P. Sullivan

Chief Engineer

GERARD F. DWYER

Director of Operations

Joseph Delgardo

Affirmative Action Manager

Fiscal Confidence

The excellent overall fiscal condition of the Boston
Water and Sewer Commission continued to
improve during 1993. Many of the Commission's
cost reduction measures - including the conversion
to monthly billing, an improved collection rate
and a significant refunding of the Commission's
outstanding debt resulting in consequential
savings - contributed to a growing level of confi-
dence and respect within the financial community.
This fiscal confidence was publicly demonstrated
in the following ways in 1993:

Balanced Budgets and
Improved Credit Ratines
Due to strong fiscal controls and conservative
budgeting, the BWSC has achieved a balanced
budget in every year it has been in operation.
This exemplary record of fiscal responsibility is
demonstrated in the Commission's credit rat-
ings - including a credit rating upgrade from
Standard and Poor's from "A-" to "A" in 1993.

Strong management, satisfactory financial operations
and a substantial, stable customer base characterize
the Commission's credit position... The Commission
has, and continues to respond to economic and
financial challenges posed by both the slowdown in
the local economy and projected large rate increases...

MOODY'S Municipal Credit Report
March, 1393

1993 Distinguished Budget Award
In 1993, the Boston Water and Sewer Commission
received the highest form of recognition in gov-
ernmental budgeting. For the second consecutive
year, the Award for Distinguished Budget
Presentation was presented to the BWSC by the
Government Finance Officers Association (GFOA)
for its Current Expense Budget document for the
fiscal year beginning January 1, 1993.

1992 CAFR Award

During 1993, the BWSC's Comprehensive
Annual Financial Report received a Certificate
of Achievement for Excellence in Financial
Reporting, presented by the Government Finance
Officers Association. The award was based on
conformity to Generally Accepted Accounting
Principles and compliance with other finance-
related legal and contractual provisions. This
award represents a celebrated accomplishment for
any municipality or governmental agency, but it
was especially notewotthy for the Commission;
it was the first time in the GFOA's history that it
bestowed this honor on any entity in the City of
Boston.

1993 Best Public

Water System Recqgnitidn
The BWSC received special recognition for
continuous outstanding performance and
achievement in 1993 from the Massachusetts
Department of Environmental Protection (DEP)
and the Northeast Rural Water Association.
Having won the DEP 1991 and 1992 Best Over-
all Public Water System Award, the Commission
was once again recognized in 1 993 for its continued
efforts and achievements with regard to compli-
ance with drinking water regulations, cross
connections, and statistical reporting.

Td The C a m m i s b i a n e r s

OF THE BaSTQN WATER AND SeWER COMMISSION,

We have audited the accompanying balance sheets
OF THE Boston Water and Sewer Commission (the
"Commission") as of December 31, 1993 and 1992

AND .THE related STATEMENTS OF OPERATIONS,

Commission equity and cash flows for the years
then ended. these financial statements are the
responsibility of the Commission's management.
Our responsibiuty is to express
an opinion on these financlu,
statements based on our audits.

In our opinion, the financial statements referred
to above present fairly, in AiL material respects,
the financial position of the Commission at.
December 31, 1993 and 1992 and the results of its
operations and its cash flows for the years then

ENDED in conformity WITH GENERALLY ACCEPTED
accounting PRINCIPLES.

We conducted our audits in
accordance with generally

ACCEPTED auditing STANDARDS.

Those stand/rds 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 -i^INANCIAL
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.

N DEPENDENT
AU DITD RS '
^ REPORT

Our audits were
made for the purpose
of forming ' an
opinion on the basic
financial statements
taken as a whole.

The Supplemental Schedule of Revenues and
Expenses - Rate Basis is presented for purposes of
additional analysis and is not a required part of

• the basic FINANCLVL STATEMENTS. SUCH INFORMATrON,
HAS BEEN SUBJECTED TO THE AUDITING PROCEDURES
APPLIED IN OUR AUDITS OF THE BASIC FINANCIAL
STATEMENTS AND, IN OUR OPINION, IS FAIRLY STATED, IN
ALL MATERIAL RESPECTS IN RELATION TO THE BASIC
FINANCIAL STATEMENTS TAKEN AS A WHOLE.

March 18, '1994

Balance Sheets
DECEMBER 31, ^<^^3 AND ^ <3 ^ z

Current assets:

Casl# and cash equivalents (note 8) $3,832,503 ' 1,279,402

Accounts receivable: ^

Customers,-less allowances of $9,103,606 in 1993
" and $ 10,8 11, 240 in' 1992 (Note 1) . 27,392,705 32,741,057

Unbilled revenues, less allowances of

$1,703,990 in 1993 and $1,742,110 in 1992

(Note 1) 9,000,544 19,269,332

Construction grants receivable - - 1,764,309 4,909,376

Prepaid expenses

853,992 1,012,460

Deferred compensation plan assets (Note 12) ' 2,193,688 ^ - 1.884,482

Total current assets ^ , 45,057,741 61,096,109

Investments (notes 4 and 8) 261,486,092 241,561,630

Property, plant and equipment, net (note 3) 349,118,663 321,560,923

Deferred charges (note 2) ' 39,374,440 26,653,608

Bond issue costs, net ' ' ' " 4,895,327 5,815,854

Total assets $ 699,912,263 656,688,124

Liabilities and Commission Equity

Current liabilities: . • ■
Payable from current assets:

Accounts payable - ■ $8,899,367 8.532,973

Other accrued liabilities 5,998,581 7,193,196

Current portion of revenue bonds 5,305,000 4,385,000

. ^ 20,202,948 20,111,169

Payable from trusteed assets:

Massachusetts Water Resources Authority assessment

(note 5) - ' - 4,788,803

Current portion of City of Boston bonds 270,000 270,000

270,000 5,058,803

Total current liabilities 20,472,948 " 25,169,972

Long:termdebt(note4) 331,921,399- 325,898,893

Long-term notes payable (note 4) 8,787,493 '

Deferred compensation -plan liability (note 12) 2,193,688 1,884,482

Other long-term liabilities 10,127,397 2,462,792

Deferred credits and reserves (note 2) - 205,628,059 179,436,255

Total liabilities 579,130,984 534,852,394

Commission equity:

Contributed capital ' 120,781,279 121,835,730

Commitments and contingencies (notes 10 and 11) -

, Total liabilities and commission equity $ 699,912,263 656,688,124

See accompanying notes to F'INAncial statements.

Statements df Dpi
Years Ended December 3T,

RATIONS
1993 AND 1992

Operating revenues:

■' Water and sewer usage

Fire pipe

Other

Total operating revenues

Operating expenses:
Operations
Maintenance

MWRA assessment (Note 5)
Depreciation and amortization
Total operating expenses

Excess operating revenues

Nonoperating revenue (expense):
Interest income
Interest expense

Total nonoperating experj^e

Excess revenues before depreciation
add-back and transfer requirements

Add: Depreciation on fixed assets acquired
by grants

Excess revenue-before transfer requirements

Excess revepues used to fiind reserves,
and other deferrals (note 2)

190,961,747 179,642,591

2,294,655 1,918,940

5,340,634 ,^,588,429

198,597,036 184,149,960

54,464,580

8,101,308

98,552,914

10,428,340

171,547,142

27,049,894

16,349,249
(19,010,555)

(2,661,306)

24,388,588

1,803,216

26,191,804

64,218,978

5,697,210

89,210,117

7,870,315

166,996,620

17,153,340

17,777,556
(20,624,566)

(2,847,010)

14,306,330

1,778,146

16,084,476

(19,024,485) (12,091,299)

Accumulated revenues used to offset future
rates - beginning of year

Accumulated revenues used to offset future
r^tes - end of year

5,890,147 1,896,970

$ 13,057,466 5,890,147

See accompanying notes td financial statements.

Statements df CaMMissioN EcpuiTv
Years ETnded December 31, 1933 and 1992

C a NTRI B UTED

Capital

Balance, December 31, 1991 $118,906,974

Contributions in aid of construction 4,706,902

Depreciation of related property ' ■ (1,778,146)

Balance, December 31, 1*992 121,835,730

Contributions in aid of construction 748,765

Depreciation of related property (1,803,216)

Balance, December 31, 1993 $' 120,781,279

Bee accdmpanyine notes to financial statements.

S T AT EMENTS OF CASH TLOWS

Years Ended [December 31, 1993 and 1992

Operating activities:

Excess operating revenues

Adjustments to reconcile operating income to net cash:
Excess revenues used to fiind reserves and

other deferrals
Depreciation and amortization
Change in assets and liabilities:
Accounts receivable
Unbilled revenues

Construction grants receivable -^ ^ .
Prepaid expenses
Deferred charges
Accounts payable
Other accrued liabilities ~

MWRA assessment
Deferred credits
Other long-term liabilities

Net cash provided by operating activities

Investing activities:

Additions to property, plant and equipment, net^
Purchase of investments
Interest income

Net cash used for investing activities

Capital and related financing activities: "
Proceeds from issuance of bonds, net
Payment on bonds, including current maturities
Proceeds of contributions in aid of construction
Payment of bond interest

Net cash provided by (used for) capital
and related financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

$ 27,049,894

17,153,340

(26,191,804)

(16,084,476)

11,210,644

7,870,315

5,348,352

17,958,194

10,268,788

(4,379,929)'

3,145,067

615,585

158,468

(16,869)

(14,978,701)

(2,887,929)

366,394

20,968

(1,194,615)

(1,011,825)

(4,788,803)

656,594

26,191,804

16,084,444

16,452,097

505,231

53,037,585

36,483,643

(35,214,220)

(23,057,^67)

(19,924,463)'

(54,l67;667)

16,349,249

. 17,777,556

(38,789,434)

(59,447,778)

12,871,740

42,941,436

(6,305,000)

(4,195,000)

748,765

• 4,706,902

(19,010,555)

(19,956,763)

(11,695,050)

23,496,575

?,553,101

532,440

1,279,402-

746,962

$ 3,832,503

1,279,402

See accompanying notes to financial statements.

no "pes to financial statements
December 31, 1993 and 1992

(1) Organization, Basis of Presentation and
Summary of Significant Accounting Policies

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

The accompanying financial statements of the Commission include only
the activities of the Commission itself, as it has no oversight 'relationships
that would require inclusion of any other potential component units.

Under the Enabling Act, the Commission is subject to regulation with
respect to rates, accounting and other matters, where applicable, by the Board
of Commissioners (the "Board"). The Board regulates the rates that the
Commission can charge its customers for~d^U£r and sewer usage. The rates
charged to customers are based on the^cash required for the Commission's
operations, debt service, and reserve contributions. However, there is no
legally adopted budget that the Commission must adhere to. To comply with
the external financial reporting requirements of the Board, the accompanying
financial statements are presented on a basis that is consistent with generally
accepted accounting principles ("GAAP") for regulated utilities (i.e., the
accrual basis of accounting and the capital maintenance measurement focus).

To accommodate the rate making process, the Commission follows the
accounting standards set forth in Financial Accounting Standards Board
Statement No. 71 ("FAS-7r'), "Accounting for the Effects of Certain Types
of Regulation". FAS-71 allows certain (a) revenues provided for future
allowable costs to be deferred until the costs are actually incurred (deferred
credits) and (b) costs incurred to be capitalized if future recovery is reasonably
assured (deferred charges). Revenues and current expenses appearing in the
Supplemental Schedule of Revenues and Expenses - Rate Basis are presented -
in the same format as utilized in the Commission's operational budgeting and
rate setting process. The revenues and expenses shown on the Statement of
Operations are presented on a GAAP basis. A reconciliation between the
revenues and expenses of these two operating statements for the year ended
December 31, 1 993 is provided below:

Revenues

Expenses

as presented in the statement of operations:

Operating revenues/expenses $ 198,597,036 171,547,142

NONOPERATING REVENUfes/EXPENSES ' 16,349,249 19,010,555

Total 214,946,285 190,557,697
Reclassifications and deferrals:

Contribution to reserves — 8,565,829 ,

Revenue adjdstments/bad DEBT EXPENSE (21,911,135) (21,911,135)

Excess deprecution OVER bond PAYMENTS — (4,519,369)

Interest expense — (4,511,678)

Interest INCOME (5,964,816) —

Capital expenditures . ' — 11,594,051

Excess revenue used to offset ■"

CURRENT rates . 5,890,147 —

Other deferrals — 127,620

As presented IN THE SUTPLEMENTAL

Schedule $ 192,960,481 179,903,015

The Enabling Act requires that any net surplus, as defined by the rate setting
process, be either turned over to the City or applied to offset water and sewer
rates for the following year. The Commission has applied $13,057,466 and
$5,890,147 for the years elided December 31, 1993 and 1992, respectively, to
offset rates in the respective subsequent years.

(a) Revenue Billings Water and sewerage fees are billed to users of the
systems on a monthly cycle basis beginning in 1993. Revenues are accrued for
periods between the termination of billings for the various cycles and the end
of the year. In 1992 the water and sewerage fees were billed on a quarterly
basis. Due to the change from quarterly to monthly billing, the unbilled
revenues decreased approximately $10 million from year end 1992 to 1993.
Various adjustments are made on a post-billing basis that reduce the amount
of total billings. Accordingly, the 1993 and 1992 total customer billings of
$53,550,624 and $63,595,528, respectively, have been reduced by provisions
for billing adjustments and sewer abatements of $13,643,451 and'
$3,410,862, respectively, in 1993 and $16,034,585 and $4,008,646 in 1992.
These net billing amounts are further reduced by an allowance for
uncollectible accounts to arrive at the net accounts receivable.

(b) Investments ^ Investments, consisting of direct and unconditionally
guaranteed short-term obligations of the U.S. Government, repurchase
agreements and money market funds secured by government securities, are
stated at amortized cost plus accrued interest.

(c) Property, Plant and Equipment Property, plant and equipment is
stated at historical 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 expense as incurred. Major renewals
or betterments are capitalized and depreciated over their estimated useful
lives. The Conunission does not have any donated fixed assets.

The Commission capitalizes interest costs during construction of assets
for its own use. No interest was capitalized in 1993 or 1992 because the
difference between interest expense and interest income on unexpended
proceeds was immaterial.

(d) Depreciation Estimated useful lives used in computing depreciation
are as follows:

■ Years
Water:

Works 100

Meters 10

Hydrants 40
se^xoerage:

Works 75

Pumping station 35

Other 4 to 14

In 1992, the Commission re-estimated the useful lives of certain property,
plant and equipment. The impact on the financial statements from this
change in estimate is not material but will result in a reduction in
depreciation expense oyer the remaining useful lives of the assets.

Notes td FrisiANCiAL ^Staxements

D E C^ MBER 31, 1993 AtMDl992

(e) Contributed Capital Contributions from governmental agencies,
individuals and the City, received in -aid of specific construction projects that
are not refundable, are recorded as contributed capital. Accordingly,
depreciation of the related property is charged direcdy to contributed capital
and appears as an addition to excess revenues in the accompanying statements
of operations.

(f) Cash Equivalents The Commission considers all highly liquid, short-
term cash investments with original maturities of three months or less to be
cash equivalents for purposes of the statement of cash flows.

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

(h)- Self-insurance _The Commission self-insures fo,r workers'
compensation, general liability and unemployment claims within certain
limits.- Under the sections of the Model Water and Sewer Act, the
Commission's tort .liability is capped at $100,000 per claimant. For general
liability elaims, the Commission self-insures for claims less than $1 million
per occurance and $2.5 million annually. The Commission also maintains a
trailing retention of $5,000 per claimant and a one year cap of $500,000,
with excess liability .coverage over the retention in the amount of $5 million.
Claims under $10,000 are paid from the operating budget. General liability
claims paid during the year were approximately $915,000, while the amount
paid for workers' compensation and unemployfhent claims was approximately
$436,000. The Commission maintains a reserye for workers' compensation
and general liability claims. The total reserve at December 31, 1993 is
approximately $4.5 million, of which approximately $950,000 relates to
workers' compensation claims.

(i) Reclassifications Certain amounts in the 1992 financial statements have
been reclassified to conform to the 1993 presentation.

The components of the deferred charges included in the accompanying
, balance sheets are as follows:

Accrued pension expense
Debt extinguishment expense

Total deferred charges

$ 15,840,264
23,534,176

16,089,235
10,564,373

$ 39,374,440 26,653,608

The activity in and components of deferred crechts and reserves included in
the accompanying balance sheet are as follows:

Debt service
Capital improvements
Working capital .
Self-insurance

Subtotal
Reduction of

FUTURE rates

Total deferred
credits

December 31,
1992

$ 23,596,000

90,203,111

57,506,997

2,240,000

173,546,108

5,890,147

Increase
(Decrease)

8,365,829
10,458,656

7,167,319

Decembers!,
1993 -^
32,161,829
100,661,767
57,506,997
2,240,000
192,570,593

1^,057,466

$ 179,436,255 26,191,804 205,628,059

(3) Property, Plant and Equipment

The cost of water and sewerage property, plant and equipment in service and
related accumulated depreciation at December 31, 1993 and 1992 are as
follows:

1993 1992

Water:

Works ' $114,160,293 111,568,571

Meters and hydrants 14,613,529 12,806,214

Total water 128,773,822 124,374,785

(2) Deferred Charges and Credits

As discussed in note 1, the application of FAS-71 residts in certain revenues
and expenses being removed from the Statement of Operations and reflected
in the balance sheet as deferred charges or deferred-credits. The revenues and
expenses that have been removed from the Statement of Operations and
added to the balance sheet as deferred credits appear in the line "Excess
revenues used to fund reserves and other deferrals " on the Statement of
Operations. The components of these amounts are:

. 1993_ 1992

Contributions TO RESERVES $ 8,565,829 3,186,000

Principal payments on long-term debt 5,660,000 3,685,000

Interest PAID FROM ESCROW funds, NET ■ (4,511,678) (4,450,969)
Capital expenditures 11,594,051 8,448,485

Depreciation , - (5,853,263) (4,728,735)

Interest income on project

and escrow FUNDS 5,964,816' 7,138,183

Other (2,395,270) (1,186,665)

Sewerage:
Works

Pumping station
Total sewerage

Less accumulated depr£CL\tion
Total

Construction in progress

186,031,182
6,818,570

, 41,82i,691
363,450,265

56,478,733
306,971,532

179,822,168

4818,570

186,640,738

15,086,09?
326,101,622

44,659,73?

$349,118,663 32^,560,923

$ 19,024,485 12,091,299

NnxES TO Financial Statements
deceKiber 31, 1993 AND iggz

(4) Long-term Debt

At the time of its creation, the Commission assumed general obligation
certificates of indebtedness of the City (the "City bonds") pertaining to the
water and sewer systems. Payments of principal and interest are made
directly to the City in accordance with the original maturity and interest
schedules. A summary of these City bonds as of Dec. 31, 1993 and 1992 follows:

City Bonds, bearing interest at rates
ranging from 5.1% to 9.5% with
maturity dates through december 1999
Less current installments

Total general obligation debt of
THE City, net of .current installments

1993

; 680,000
270,000

$410,000

A summary of revenue bonds OF THE COMMISSION FOLLOWS:

1993

Senior debt:

1985 Series A, bearing, a variable

INTEREST rate (1.2% AND 3.95% AT

_Dec. 31, 1993 AMD 1992, respectively),

MATURING IN TWO EQUAL AMOUNTS ON
Nov. 1, 2014 AND 2015 AND REQUIRING
ANNUAL SINKING FUND CONTRIBUTIONS
THROUGH 2014

1986 Series A, bearing interest at rates

RANGING FROM 6.0% TO 7-.88%, WITH
MATURITY DATES RANGING FROM NOV. 1,

1994 TO 2015
1989 Series A, bearing interest at rates

OF 6.4% AND 6.9% WITH MATURITY DATES

AT Nov. 1, 1994 AND 1996, respectively
1991 Series A, bearing interest at rates

RANGING FROM 5.5% TO 7.0%, WITH
MATURITY DATES RANGING FROM NoV. 1,

1994 TO 2021
^ 1992 Series A, "bearing interest at rates

RANGING FROM 3.0% TO 6. 1 %, WITH
MATURITY DATES RANGING FROM NOV. 1,

, 1994 TO 2013
1993 Series A, bearing interest at rates

RANGING from 2.2% TO 5.4%, WITH

maturity dates ranging from Nov. 1,
1994 TO 2019

Subordinated debt:

1984 Series A, bearing interest at a rate

of 10%, WITH A maturity DATE OF

Jan. 1, 1996

1988 Series A, bearing interest at rates
ranging from 6.0% TO 7.4%, with
maturity dates ranging from Nov. 1,
1994 TO 2008

Less current installments

Total long-term revenue bonds
Less unamortized issue discount

1992

950,000
270,000

$47,385,000 48^,030,000

53,790,000 54,660,000

1,010,000 39,395,000

17,705,000 52,065,000

68,695,000 68,810,000

1,610,000 18,935,000

55,130,000 55,855,000

344,180,000
5,305,000

337,750,000
4,385,000

Annual sinking fimd requirements and debt principal and interest nriaturitles
for all future years are as follows (amounts are in thousands):

City

Revenue

Bonds

Totals

Principal Interest

Principal

Interest

Principal

Interest

1994

270

$ 5,305

21,050

$ 5,575

21,094

1995

195 .

4,195

20,771

4,390 ,

20,798

1996 -

7,860

20,327

7,925

20,342

1997

8,215

17,014

8,265

17,024^

1998

8,755

16,573

8,805

16,580-

Thereafter

, 3

309,850

174,280

309,900

-174,283

$ 680

106 $344,180 270,015 $344,860 270,121

The 1984 Series A Bonds were issued in orjer to refund a series of 1980
System Revenue Bonds. Under the Refunding Trust Agreement, 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 Refunding Trust Agreement and pledged for their benfefit thereunder.

The 1985 Series A Bonds were issued to provide fiinds for projects under
the Commission's ongoing capital improvement programs and other capital
and operating needs. The Commission maintains a letter of credit to
guarantee the principal and interest payments on these variable interest rate
bonds in the event that the Commission is unable to make such payments.

In August 1986, the Commission issued 1986 Series A Bonds. This issue
was structured -as a rolling cross-oxer refiinding and new money issue. The
1986 Bonds provide funds far the Commission's ongoing capital
improvement program and other capital and operating needs. In addition, a
portion of the proceeds on the 1986 Bonds were deposited into the 1986 -
Series A Escrow Account to provide for the principal payments of the 1985
Series A Bonds and the interest payments on the 1986 Bonds as they come
due. Thus, the Commission is allowed to pay the low short-term interest
rates pl-ovided under the 1985 Bonds and has secured a guaranteed
redemption for the 1985 Bonds.

In December 1988, the Commission issued 1988 Series A Bonds fo
provide for the defeasance of a portion of the 1984 Series A Bonds, to provide
supplemental funding for the Operating Reserve Fund and to pay costs of
- issuance. Under the 1988 Refunding Trust Agreement, the Commission
deposited sufficient funds with the Bond Trustee to pay when diie the
principal and interest on the refunded bonds tmtil the first call date, January
1, 1995. As a result, the refunded bonds are no longer outstanding under the
Commission's Resolution.

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

In June 1991, the Commission issued 1991 Series A Bonds to provide
fxxnds for projects, to provide funds for the Senior Debt Reserve Fund and to
pay the cost of issuance of the 1991 Series A Bonds. The Commission
maintains an insurance policy with Financial Guaranty Insurance Company
to guarantee payment of principal and interest on the 1991 Series A Bonds
maturing November 1, 1-997 through November 1, 2021.

338,875,000
7,363:601

333,365,000
8,146,107'

Net long-term revenue bonds

$331,511,399 325,218,893

Notes td FTimanciau Statements
December 31, 1993 and 1992

In September 1992, the Commission issued 1992 Series A Bonds to
provide funds foT the. advanced refunding of $23,930,000 of the
Commission's 1986 Series A Bonds and the establishment of an escrow account
to provide' for future principal and interest payments on $37,640,000 of the
same 1986 series bonds as part of a cross-over refimding transaction. Under
the 1992 Refunding Trust Agreement, the Commission deposited sufficient
fimds with the Bond Trustee to pay when due the principal and interest on
the advanced refunded bonds until the first caH date, November 1, 1996. As
a result, this transaction qualifies as an ih-substance defeasance and the
advanced refunded bonds. of $23,930,000 are no longer considered
outstanding under the Commission's Resolution. The bonds refunded
through the cross-over transaction are not considered defeased, accordingly,
the outstanding debt of $37,640,000 and related escrow account are included
in the accompanying financial statements..

In March 1993, the Commission issued $100,505,000 of General
Revenue Bonds, 1993 Series A to advance refund a portion of lhe_1984 Series
A {Subordinated Series), a portion of the 1989 Series A (Senior Series), and a
portion of the 1991 Sefies A (Senior Series) Bonds. Under the 1993
Refunding Trust Agreement, the Commission deposited sufficient funds with
the Bond Trustee to pay the principal and interest on the advanced refiinded
bonds when due. As a result, this transaction qualifies as an. in-substance
defeasance and the advanced refunded bonds of $88,040,000 are no longer
considered outstanding under the Commission's Resolution. The
Commission advance refunded the bonds to reduce its total debt service
payment over the next 26 years by almost $7,426,000 and to obtain an
economic gain of $6,256,720. — _

In. the aggregate $214,360,000 remains outstanding at December 31,
1993 on the bond issues that were defeased "in-substance".
' 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 disbursed into and
withdrawn from other fiinds 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 covenants are met, the
Commission has the option to remove any excess cash from the Revenue
Fund and place such cash in a fimd not restricted by the Resolution.

The Commission has options for early redemption of revenue bonds starting
in 1995 at-prices ranging from 100% to 103% of face value. In addition, in
compliance with the ResolutioUj the Commission has established both
trusteed and nontrusteed funds with investments, principally short-term
securities, which are restricted for paynient of specified liabilities, capital
projects or other costs of operations. The components of the trusteed and
nontrusteed investments at December 31, 1992 and 1991 are as follows:

Trusteed:

U.S. Treasury notes

U.S. Treasury bills

Other government obligations

Money market and

cash investments
Commercial paper
Repurchase agreements

Nontrusteed:

U.S. Treasury JSOTES
U.S. Treasury bills
Money Market and

CASH investments .

Commercial paper
Repurchase Agreements

$ 78,449,086

6,924,736

30,964,781

29,325,851

24,725,490

50,287,185

220,677,129

6,611,690
171,366

26,046,544
3,000,000
4,979,363

40,808,963

$ 261,486,092

86,926,407

4,103,168

44,007,138

40,540,493

12,622,067

32,938,383

221,137,656

17,752,945
2,000,000

241,561,630

NOTES TO Financial. Statements
December 31, 1993 and 1992

Long-Term Notes Payable: During 1993 the Commission executed new
loan agreements with a principal balance $7,329,947 with the Massachusetts
Water Pollution Abatement Trust ("MWPAT") to finance and refinance a
portion of the Commission's water pollution abatement projects. As of
December 31, 1993, an aggregate amount of $6,969,129 was received by the
Commission. The Commission is eligible to receive the remaining $360,818
once the projects are completed. For purposes of offsetting principal and

interest payments, an amount aggregating $8,136,275, consisting of contract
assistance payments from the Commonwealth of Massachusetts and other
interest-subsidies from MWPAT,will be recognized as capital grants in aid of
tonstruction over the term of the loan. The long term portion of the loan
agreements with MWPAT is'$7,158,563. The schedtded loan payments and
related subsidies are shown below:

Scheduled Loan Repayments

Loan Subsidy Amounts

Net Loan Repayments

Equity

Contract
Assistance

•

Principal

$ 171,384

Interest
389,287

Total

Earnings
200,907

Payments
261,594

Total
462,501

Principal

74,624

Interest
23,546

Total

1994

560,671

98,170

1995

239,522

366,003

605,525

1-86,468

292,560

479,028

106,616

19,881

126,497

1996

248,129

357,603

605,732 '

180,121

292,560

472,681

113,649

19,402 '

133,051

1997

257,747^

348,079

605,826

173,542

292,560

466,102

121,014

18,710

139,724

1998

268,227

337,237

605,464

166,704

292,560

459,264

128,788

17,412

146,200

Thereafter

6,144,938 -

$.7,329,947

2,942,814
4,741,023

9,087,752
12,070,970

1,408,266
2,316,008

■4,388,433
5,820,267

5,796,699

8,136,275

3,193,944
3,738,635

97,109

3,291,053

196,060

3,934,695

During 1993 the Commission executed a new, interest free loan agreement with the Massachusetts Water Resource Authority. The Commission received
$2,036,162 to be repaid in five equal, annual installments as part of the Massachusetts Water Resource Authority Infiltration/Inflow Local Financial Assistance
program. The long term portion of this loan is $1,628,930. This program is designed to assist service area communities with sewer system rehabilitation.

Notes to Financiau Statements
December 31, 1993 and 1992

5) Massachusetts WAtER Resources Authority

The Massachusetts Water Resources Authority (the "Authority") provides all
the Commission's water supply and sewer treatment requirements and
assesses the Commission for a portion of its actual operating and'capital
expenses. The assessment is based on the Authority's fiscal year Quly 1 to
June 30) and payments are due to the Authority in four equal installments in
September, November, March and May. The change in payment method to
equal installments resulted in a decrease of approximately $4.8 million in
accrued assessments due to the Authority at year end 1993 as compared with
year end 1992, Interest is not charged on the outstanding balance. The
amounts included in the operating statements for the assessments by the
Authority for 1993 and 1992 are as follows:

1993

1992

Assessments allocated on:
Water usage
Wastewater usage
Total

$27,600,054

70,952,860

$ 98,552,914

26,620,563
62,589,554
89,210,117

During both 1993 and 1992, over 75% of water received from the Authority
was^billable to customers. Since its inception, the Commission has increased
the percentage of billable water from 52% in 1977 to over 75% in 1993 and
is continuing to take steps to imjJrove the amount of billable water, including
replacement of old and defective meters and implementation of a
comprehensive leak detection and repair program.

(6) Transactions with the City of Boston

The Comfnission's ongoing program to meter City facilities has resulted in
billings to nine City departments based on actual consumption of $3,015,000
and $3,631,000 in 1993 and 1992, respectively.

The City, provides services to the Commission,- including paving and
faciUties rental. Operating costs billed to the Commission by the City were
$1,428,000 and $2,368,000 during 1993 and 1992, respectively. Capital
costs billed by the City were $6,121,000 and $1,330,000 during 1993 and

1992, respectively.

During 1992, the Commission entered into an agreement with the
City that allows the Commission's water and sewer bills that have remained
unpaid for more than 2 years to be added, as Hens on the City's property tax
bills. Under this agreement, the City provides collection services on these
bills for an administrative fee. In 1993, approximately $4.2 million of
billings were included on property tax bills and approximately $1.4 njiHion of
this amount was collected and remitted to the Commission. At year end

1993, the Commission transferred an additional $2.7 million of unpaid bills
to the City for collection as part of this program.

(7) Retirement Benefits

The Commission provides retirement benefits to substantially all of its
employees which are funded by a pension trust fund (the-"Trust Fund"), and
the State-Boston Retirement System (the "SBRS"), a cost-sharing retirement
plan. The Commission does not provide any other significant
postemployment benefits.

A dispute concerning the Commission's past and future obligations to
all Commission employees covered by the SBRS was settled in 1986, resulting
in a payment of $19,100,000 to the SBRS. This payment was funded
primarily through 1985 and 1986 bond proceeds and is recorded as a deferred
charge that will be recovered through future rates. As part of the setdement
with the SBRS, the Commission annually reimburses the City for-the
Commission's share of pension benefits paid to Commission employees. The
Commission's share is based upon the proportion of each employee'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 ("MGL").

Description of the SBRS Plan . ,

The SBRS is a cost-sharing multi-employer public; employee retirement
system established under Chapter 32 of the MGL and is a member of the
Massachusetts Contributory Retirement System. _

The SBRS pro-vid^s for retirement allowance beiiefits up to a
maximum of 80% of a member's highest consecutive three-year average
annual rate of regular compensation. Benefit payments are based upon a
member's age, length of creditable service, level of compensation, and group
classification.

Members become vested after ten years of creditable service. A
superannuation retirement allowance may be received upon the completipn of
twenty years of service or upon reaching the age of 55 with ten years of
service. Normal retirement for employees occurs at age 65.

A retirement allowance has two parts: an annuity and a pension. A
member's accumulated total deductions and a portion of the interest they
generate constitute the annuity. The differential between the total retirement
benefit and the annuity is the pension. The average retirement benefit is
approximately 80-85% pension and 15-20% annuity.

Members wha beconie' permanendy and totally disabled from further
duty maybe eligible to receive a disability retirement allowance. The amount
of benefits to be received in such cases is dependent upon several factors
including ^whether or not the disability is work-related, the member's age,
years of creditable service, level of compensation, veteran's status, and group
classification.

NOTES TO Financial Statements
December 31, 1993 and 1992

Employees who resign and are not eligible to receive a retirement allowance
or^ho are under the age of 55 are eiititled to request a refund of their
accumulated total deductions. In addition, depending upon the number of
years of creditable service, silch employees are entitled to receive either zero
(0%) percent! Fifty (50%) percent, or one hundred (100%) percent of the
regular interest which has accrued upon those deductions.

Survivor benefits are extended to eligible beneficiaries of deceased
members. ~ '

Administrative expenses are appropriated from governmental entities
whose employees are members of the SBRS.

The Commission and its employees are obligated to contribute to the
plan under authority of the Pension Reform Law adopted in 1988.

The plan described ^bove is funded by the assets held' in the Trust
Fund as well as assets earmarked for the Commission held as partT>f the
SBRS. As required by the Commission's Enabling Act, employee pension
contributions are transferred to the SBRS 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 make
additional employer contributions to the Trust Fund based upon the
actuarially determined cost of ftiture benefits, net of employee contributions.

The Commission's Trust Fund

(a) Valuation of Investments

Trust Fund assets at December 31, 1993 and 1992 are as follows:

1993

Assets (at fair market value):
Common stock
Preferred stock
Cash

Mutual funds
i Total

$ 16,973,017

237,550

515,936

9,763,186

S 27,489,689

14,087,551

678,160

471,345

8,601,642

23,838,698

(b) Funding Status and Progress ^

The" Commission's funding policy has been to provide for quarterly employer
contributions to the Trust Fund based upon an actuarially determined rate
using the aggregate actuarial cost method. The Commission's contributions
totalled approximately $781,000 in 1993, and $810,000 in both 1992 and
1991. As a percentage of the covered payroll this amounts to 4.0% in 1993,
4.1% in 1992 and 5.1% in 1991. Note that the actuarially determined rate
changed from 5.5% to 4.0% in January 1992. This accounts for the changes
in the contributions as a percentage of covered payroll. The Commission's
covered payroll was approximately $19,327,000, $19,533,000 and
$18,240,000 in 1993, 1992 and 1991, respectively. Total payroll was
approximately $21,051,000, $21,183,000 and $20,246,000 in 1993, 1992
and 1991, respectively.

Net assets in excess of the pension benefit obligation ("PBO")
applicable to the Trust Fund, as of January 1, (the latest data available)j is
determined as follows:

1993

1992

Net assets available for benefits
Pension benefit obligation: >
Retirees and benefichries
currently receiving
benefits and terminated
employees entitled to
benefits but not yet
receiving_them
Current employees:

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

Net assets in excess of pension
benefit obligation

$23,838,698

21,920,705

4,144,425

11,706,139
1,672,561-

17,523il25

$6,315,573

8,523,000
3,211,000

The investment portfolio is regulated by the MGL, Chapter 32, Section 23.
The investments are presented in the financial statements at fair market value.
The investments are managed by independent investment advisors. Fleet
Bank of MA, N.A., is the custodian of the portfolio.

In compliance with Statement No. 5 of the Governmental Accountings
Standards Board, the January 1, 1992 PBO was computed through an
actuarial update using the information contained in the January 1, 1991
actuarial valuation. The January 1, 1993 PBO was computed using the
information contained in the January 1, 1993 actuarial valuation. The
significant assumptions used in the calculation .of the PBOs as of January 1,
1993 and 1992 include annually compounded rates of return of 7.5% and
8.0%, respectively, on present and future assets and projected salary increases
of 5% arid 6% per year, compounded annually. The January 1, 1993
actuarial valuation was based on 130 retired and inactive employees and 550
active ernployees. These assumptions are the same as those used to determine
actuarial contribution requirements.

Net assets available for benefits as a percentage of-the PBO are 136%, 143%
and 128% for 1993, 1992 and 1991, respectively. The excess assets as a
percentage of covered payroll are 33%, 34% and 20% for 1993, 1992 and
1991, respectively. Teti year historical -trend information for the Trust Fund
is not available. ' ,

NpTES TD Financial Statements

DECEMBER 31, 1993 AND 1932

SBRS -

(a) Valuation of Investments ^

The investment portfolio is regulated by the MGL, Chapter 32, Section 23.
The investments are presented in the financial statements at fair market value.
The investments are managed by independent investment advisors. State
Street Bank and Trust Company is the custodian of the portfolio.

(b) Funding Status and Progress

The amount shown below' as the PBO for SBRS is a standardized disclosure
measure of the present value of pension benefits, adjusted for the effects of
projected salary increases estimated to be payable in the future as a result of
employee service to date. The measure is intended to help users assess the
fimding status of the system on a going-concern basis, assess progress made in
accumulating sufficient assets to pay benefits when due, and make
comparisons among systems. Employee contributions are defined under
MGL, "Chapter 32. Total employee contributions were approximately
$1,412,000, $1,390,000 and $1,314,000 or 7.3%, 7.1% and 7.2% of covered
payroll in 1993, 1992 and 1991, respectively.

The PBO was computed as part of an actuarial valuation performed as
of January 1, 1993. Significant actuarial assumptions used in the valuation
include (a) the life expectancy of participants using the 1971 Group Annuity
Mortality Table, set back six years for females, (b) projected salary increases of
6% both retroactively and prospectively, a year, attributed to inflation and
seniority/merit, (c) a rate of return on the investments of present and fiiture
assets of 10% a year, and (d) retirement age assumptions of 64, 62 and 60 for
various groups. »

Total unfunded PBO of SBRS and an estimate of.the Commission's
share as provided by SBRS at June 36, 1993, (the latest data available)^ are as
follows (in thousands):

SBRS

Commission

Retirees and beneficiaries

currendy receiving benefits and

terminated employees not yet

receiving benefits

$ 1,011,651

9,738

Current Employees:

Accumulated employee

contributions including

investment earnings

613,060

11,505

Employer-financed vested^

301,524

5,958

Employer-financed nonvested

145,574

2,727

Cost-of-living adjustments ("COLA")

reimbursable by the

Commonwealth of Massachusetts

255,905

3,340

Total pension benefit obligation

2,327,714

33,268

Net assets available for benefits, at market

1,353,519

23,454

Unfunded pension^jenefit

obUgation

974,195

9,814

Effects of COLA

255,905

3,340

Unfunded pension benefit

obligation, net of COLA \

$ 718,290

6,474

Effective July 1, 1991, the SBRS adopted a funding schedule, approved by the
Public Employee Retirement Administration, equal to the following amounts
^ciliated in accordance with the entry age normal actuarial cost method:

1. Normal cost, or the cost of projected pension benefits attributed to the
' fiscal year. ^

2. 12 year amortization, in an amount increasing by no more than 4-1/2%
per year, of the unfunded actuarial liability resulting from retiree
liabilities frozen at July 1, 1991 (10 years remaining).

3. 29 year amortization, in an amount increasing by no more t^an 4-1/2%
per year, of the unfiAided actuarial liability resulting from active liabilities
(27 years remaining).

4. 15 year amortization of the unfunded actuarial liability resulting from
actuarial gains and losses (13 years remaining).

5. 15 year amortization of actuarial Tgain) or loss as pf July 1, 1992 (14 years
remaining).

6. 15 year amortization of actuarial (gain) or loss as of July 1, 1993.

(d) Historical Trend Information

Ten-year historical trend information designed to provide information about
SBRS and its progress made in accumulating sufficient assets to pay benefits
when due is presented in the SBRS financial statements. For the three years
ended June 30, 1993, 1992 and 1991, available assets were sufficient to fiind
58%, 54% and 50% of the PBO, respectively. Unfimded PBO represented-
138%, 154% and 159% of the annual payroll for employees covered by the
SBRS for 1993, 1992 and 1991, respectively.

Notes to Financial Statements

D E CiE MBER 31, 1993 AND 1952

(8) Deposits and Investments

The Commission's General Revenue 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 collateralization can only be made with financial institutions
meeting certain criteria. Certificates of deposit must be fiilly collateralized
and Issued by FDIC insured banks. Tnvestments can also be made in
securities issued by or unconditionally guaranteed by-the U.S. Government or
its Agencies; public agencies, municipalities or state obligations carrying the
highest bond rating; commercial paper rated A-1, P-1; A-Rated money market
funds; fully collateralized investment contracts and certain futures contracts.
In addition, the Commission's Trust Fund has additional investment powers,
. most notably the ability to invest in stocks, corporate bonds and other'
instruments.

I ' " - ■

• ^c

(arDeposits

'A sumpiaxy of the amo'Unt of the Commission's deposits that are (Category 1 )
fiilly insured or collateralized with securities held by the Commission or its
agent in the Commission's name, (Category 2) those deposits that 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 that are not collateralized as of December 31, 1993 follows:

(b) Investments

The? Commission's investments are categorized according to the level of risk
assumed by the Commissioii. 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 Commission'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: