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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 




X 



V 



■^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 




Bonds 


Totals 




Principal Interest 


Principal 


Interest 


Principal 


Interest 


1994 


$ 


270 


44 


$ 5,305 


21,050 


$ 5,575 


21,094 


1995 




195 . 


27 


4,195 


20,771 


4,390 , 


20,798 


1996 - 




65 


15 


7,860 


20,327 


7,925 


20,342 


1997 




50 


10 


8,215 


17,014 


8,265 


17,024^ 


1998 




50 


7 


8,755 


16,573 


8,805 


16,580- 


Thereafter 




50 


, 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. 



(c) Historical Trend Information ' 

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 



(c) Contribution Requirements and Contributions Made 

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: 



Category 



Estimated 
Carrying market 
AiWouNT Value 



$92,157,478 , — 



30,964,781 



U5. Government 

OBUGATIONS 

U5. Government 
Agency- 

pBUGATIONS 

Repurchase 

agreements 
Money Market 
Commercial. 

paper 
Total $123,126,834 82,992,038 30,229,063 236,347,935 235^225373 



— 92,157,478 92,008,022 



30,964,781 30,421,475 



— 55,266,548 54,94338 

30,229,063 30,233,638"3033,638 



— . 27,725,490 



27,725,490 27,619,000 



Total 

Bank Carrying 

Balance Amount 



Cash $ 368,838 

Money Market — 
Total $368,838 



7,217,940 
23,955,975 



7,586,778 
23,955,975 



5,004,434 
23,966,226 



31,173,915 31,542,753 28,970,660 



Outstanding checks account for the majority of the difft 
bank balance and the carrying amount of cash. 



(9) Lease Agreements 

On July 2, 1993, the Commission entered into a new 30-year- operating lease 
for office space in the same building the Commission had previously 
occupied. This lease accounts for over 95% of the Commission's future 
minimum lease commitments. In addition to the minimum base rent under 
this lease, the Commission must pay as additional rent, a percentage of 
operating costs of the leased building. 

The Commission also leases other office space and equipment under 
various leases expiring through 1996, that have also been accounted for as 
operating leases. Leases associated with other office space are expected' to be 
renewed as they expire in the normal course' of business uiitil the commission 
finalizes construction of a planned consolidated facility.' 

Minimum lease commitments under all operating leases with terms in 
excess of one year at December 31, 1993 are as follows: 



Office 



Other 



1994 


$ 640,875 


660,050 


1995 


668,062 


406,739 


1996 


668,062 


8,860 


1,997 


668,062 


— 


1998 


■ 698,209 


— 


Thereafter 


20,906,434 

$ 24,249,704 


— 


Total ' 


1,075,649 



Rent expense under operating Teases amounted to $1,663,757 
,$1,636,502 in 1993 and 1992, respectively. 



Notes TD Financial Statements 
December 3 1, 1993 and 1992 



(10) Commitments 

A major capital improvement program is currently in progress. As part of this 
program, the Commission has entered into a number of contracts for the 
design and construction of its facilities. Commitments under these contracts 
aggregate approximately $40 million as of December 31, 1993. Capital 
improvements, primarily related to water and wastewater system projects with 
an emphasis on the clean-up of the Boston harbor.area, are expected to 
aggregate approximately $79 million for 1994 and 1995. Of this amount, 
approximately $61 million represents extension and improvement projects 
and $18 million represents renewal and replacement projects. The extension 
and improvement projects will be 22% funded by federal and state grants. 
. The remaining amounts will be funded from the Commission's bond 
proceeds and operating revenues. 

(1 1) Contingencies 

The Commission is involved in ordinary and routine litigation and other 
matters telated to its operations and the establishment 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 reimbursement to the grantor agency for 
expenditures disallowed under terms of the grant. The Commission belieyes 
such disallowances, if any, will not be significant. ' 

The Commission is involved as a defendant in litigation regarding the 
pollution of Boston harbor. Management believes that, except for increases 
in future assessments by the Massachusetts Water Resources Authority related 
to the litigation, the Commission's extensive capital improvement program 
(see note 10) addresses probable actions that the Commission may be 
required to imdertake in connection with this litigation. 

The Commission has collected a l,arge quantity of catch basin 
cleanings at one of its pumping station locations. The Commission is aware 
of the need to properly dispose of this material and has accounted for the 
estimated future costs associated with the clean up in the financial statements. 
Additional costs associated with the clean up may occur but cannot be 
reasonably estimated at this time. 



(12) Deferred Compensation 

The Commission offers its employees a deferred compensation plan created in 
accordance with Section 457 of the U.S. Internal Revenue Cdde. The plan is 
administered by Aetna Life Insurance and Annuity Company. The plan, 
available to all employees, permits them to defer a portion of their current 
salary to future years. The deferred compensation is not available to the 
participants until termination, retirement, death or unforeseeable Emergency. 

In accordance with Section 457 of the Internal Revenue Code, all 
amounts of compensation deferred under the plan, all property and rights 
purchased with such amounts, and all income attributable to such amounts, 
property, or rights are (until they ate made available to the employee or other 
beneficiary) solely the property and rights of the Commission (without being 
restricted to the provisions of benefits under the plan), subject only to the 
claims of the 'Commission's general creditors. 

Participants' rights created under the plan are equivalent to those of 
general creditors of the Commission and only in an amount equal to the fair 
market value of the deferred account maintained with/espect to each 
participant. Plan assets have been used for no purpose other than to pay 
benefits. In addition, the Commission believes that it is unfikely that it will 
use the assets' to satisfy the claims of general creditors in the fiiture. 

The Commission and its agent have no liability for losses under the 
plan, but do have the duty of care that would be required of any ordinary 
prudent investor. ' , - 

The activity of the plan for the fiscal year ended December 31, 1993, 
is as follows: 

Fund assets (at market value) January 1, 1993 $ 1,884,482 
Increase (decrease) in fund assets: 

Deferrals OF COMPENSATION 216,707 

Earnings and adjustments to "market value 1 14,029 

Payments, withdrawals and other reductions (21,530) 

Fund assets (at market value) December 31, 1993 $ 2,193,688 



; U P P l_E M E N X At S C H E D U LE OF REVENUES AND E ?< P E N S E S — R AX E BA! 

Ended December 31, 19 93 and 1992 



m 



Revenues: 

Water revenue 
Sewer revenue 

Less: 

Adjustments 
Discounts 
Bad debt 
Total 



$ 69,276,952 
121,684,795 
190,961,747 



15,340,693 

817,682 

5,752,760 

21,911,135 



69,521,239 
110,121,352 
179,642,591 

21,577,110 

695,212 

8,083,917 

30,356,239 



Net billed charges 

Prior year surplus 

Miscellaneous revenues: 
Late charge revenue 
Investment income 
Fire pipe revenue 
Other income 
Total revenues 



169,050,612 
5,890,147 

4,024,210 
6,360,223 
2,294,655 
5,340,634 
192,960,481 



149,286,352 
1,896,972 

4,866,299 
5,773,075 
1,918,940 
2,590,964 
166,332,602 



Direct operating 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 ouday 

Total direct operating expenses 

Nonoperating expenses: 
MWRA assessment 
Capital improvements 
Principal payments 
Interest expense 
Deposits to reserve funds 
Miscellaneous 

Total nonoperating expenses 



Total ( 



: expenses 



Current year rate surplus 



20,839,563 

1,035,921 

3,392,987 

2,018,818 

8,101,308 

421,372 

1,703,726 

1,663,757 

774,663 

615,524 

193,482 

250,225 

725,304 

41,736,650 



98,552,914 

10,868,747 

5,660,000 

14,498,877 

8,565,829 

19,998 

138,166,365 

179,903,015 

$ 13,057,466 



20f 8 14,026 

1,038,897 

4,817,619 

1,938,821 

5,697,210 

372,623 

1,027,556 

1,636,502 

617,541 

765,423 

754,038* 

254,910 

649,621 

40,384,787 



89,210,117 

7,798,864 

3,685,000 

16,173,598 

^3,186,000 

4,089 

120,057,668 

160,442,455 

5,890,147 



This supplemental schedule presents the Commission's revenues and expenses on the 
basis that is presented in the Commission's budget and rate-setting documents. 



H-- 


















!*•» 



Bqstdn WAter and 
Sewer CaMMissioN 



425 Summer Street 

Boston, Massachusetts 02210 



617.330.9400