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Boston Water and Sewer Commission 

Annual Report 1 9 9 5 









I. V 



By utilizing state-of-the-art trenchiess technologies, such as microtunneling, 
pipe bursting and cured-in-place lining, the Commission is able to rehabilitate 
its 1 00-year-old sewer system in Copley and Park Squares while minimizing impacts 
to the residential, commercial and tourist activities in this vibrant area of Boston. 




Victoria L. Williams 
Commissioner 



Dennis A. DiMarzio 
Chairman, 
Board of 
Commissioners 



Vincent G. Mannering Cathleen Douglas Stone 

Executive Director Commissioner 




Ihat does innovating savings and service mean? At the Boston Water and Sewer Commission it means 
finding ways to be more efficient and deliver the highest quality services in the most cost-effective 
manner. That is what the Commission did in 1995 and will continue to do under my administration. 
From senior management and division directors to unit supervisors and individual employees, we 
worked collectively examining ways to produce cost savings while simultaneously improving service 
to Boston's residents and businesses. 

Our efforts did not go unrewarded. Implementing a variety of measures to promote greater effi- 
ciency resulted in a $2.3 million savings over 1995 budgeted expenses and an $8.8 million operating 
surplus. These savings allowed us to announce that for an unprecedented third consecutive year 
there will be no rate increase in 1996. This announcement is even more remarkable in light of the 
fact that the Massachusetts Water Resources Authority (MWRA) assessment, which comprises 54% of 
our current expenses, is projected to increase by a minimum of 7.0% in 1996. 

Obviously, the Commission cannot continue to absorb increases in MWRA's assessment without 
increasing our customers' water and sewer rates. However, we will do everything in our power to 
assure our ratepayers high quality water and sewer services at the lowest possible cost. 

Mayor Thomas M. Menino, BWSC's Board of Commissioners and the State Legislature have all con- 
tributed significantly to our achievements. The Board, by its constant vigilance and oversight, 
ensures that we are as proficient as possible. The Mayor and the State Legislature, by supporting and 
providing funding for rate relief assistance and the Commonwealth's State Revolving Loan Fund 
Program (SRF), enable the Commission to complete needed improvements to our infrastructure 
while lessening the burden of these costs on our ratepayers. 

Our goal in 1996 is to continue to search for more innovative ways to generate savings and improve 
services to our customers. The Board of Commissioners will provide the direction and oversight of 
these efforts, and I pledge my best effort and that of my administration toward this endeavor. 



Implementing a 
variety of measures 
to promote greater 
efficiency resulted 
in a $2.3 million 

savings and 

an $8.8 million 

operating 

surplus. 




Vincent G. Mannering / 



Executive Director 



Message from the 
Executive Director 




Sophisticated computer 
hardware and software 
systems enable the 
Commission to:||||^form a 
wide array of c^ifpiicated 
functions quicidy and 
efficiently. 




J^- t Li 




he Commission began 1995 with a new 
Executive Director and a mission to tighten its 
fiscal belt to ensure every dollar is well spent. 
The Board of Commissioners directed the staff 
to implement all conceivable and practical cost- 
cutting measures and increase employee pro- 
ductivity. The goal of these measures was to 
ensure no rate increase in 1996, a goal which the 
Commission achieved for an unprecedented 
third consecutive year. To meet this goal, senior 
management evaluated the organizational struc- 
ture of the agency, eliminated or streamlined 
redundant activides and consolidated areas of 
common purpose. The Commission's highly 
skilled and experienced workforce was given the 
necessary resources to implement cost-cutting 
and efficiency measures. The subsequent reorga- 
nization of the Commission's management struc- 
ture produced operational efficiencies and 
increased employee productivity. The result is a 
solid foundation on which the Commission will 
continue to build. 
Repair and Maintenance 

Enhancements to the operations and mainte- 
nance work order system, and increases in 
employee productivity enabled the Commission 
to achieve a 1626,500 savings in operations and 
maintenance costs and significantly reduced the 
need for costly emergency repairs. 



Professional Services 

Increases in technical proficiency and 
productivity by the Commission's employees 
generated a $268,700 savings by eliminating the 
need to procure professional assistance for 
certain activities. 
Tax Title Program 

A new in-house Tax Title Program was developed 
to enable the Commission to secure a tax lien on 
a property that supersedes all liens except for 
federal, state and local taxes. The program gen- 
erated approximately $328,000 in savings by 
eliminating the need to obtain outside legal 
counsel for the Commission's collections efforts. 
Insurance Procurement 

The Commission revised its procedures 
for procuring various types of insurance. 
It adopted a three-year procurement 
contract, which stimulated greater interest 
and competition among insurance providers, 
generating a first-year reduction in premiums 
of $132,000. Over the initial three years of this 
program, the Commission anticipates a savings 
of approximately $500,000. 

Office Supplies Materials 

A Centralized Order Processing System for office 
supplies and other related materials was imple- 
mented. The system produced a $25,100 savings 
by coordinating and streamlining the purchase 
of these materials. 



The goal . . . 
was to insure no 
rate increase in 
1996, a goal wliicli 
the Commission 
achieved for an 
unprecedented 
third consecutive 
year. 



Increasing Operational 
Efficiencies 



he objectives of the Commission's Capital 
Improvement Program (CIP) are to improve the 
delivery and service of high quality drinking 
water for domestic consumption and fire protec- 
tion, and the efficient and hygienic collection of 
sewage for transport to MWRA's treatment facili- 
ties. In 1995 the Commission continued its strat- 
egy of intelligent, directed investments in its 
water, sewer and drainage systems. 
Water Main Rehabilitation Progratn 

To ensure high quality drinking water from 
the Commission's protected source supply at 
the Quabbin and "Wachusett Reservoirs to 
our customers' tap, over 20 miles of water 
mains were cleaned and cement-lined, or 
replaced, in 1995. 

Valve and Hydrant 
Replacement Program 

To ensure reliable fire protection throughout the 
City of Boston, 4,156 hydrants were inspected 
and repaired when necessary, 194 hydrants were 
replaced and 252 custodian locking devices were 
installed to prevent unauthorized use of water 
from a hydrant. 

Lead Service Line 
Replacement Program 

To minimize the presence of lead in drinking 
water, the Commission replaced 24,269 linear feet 



of old lead service pipes that deliver water from 
the main in a street to a customer's property 

Water Quality Monitoring 
and Sampling 

To closely monitor drinking water quality 
throughout the City and ensure compliance 
with public health regulations and standards, 
the Commission sampled and analyzed 2,971 
drinking water samples. 
Sewer System Rehabilitation 

To improve the capacity and operational effi- 
ciency of the sewer system to transport flow to 
MWRA's treatment facilities, 21 miles of sewers 
were televised and inspected, approximately two 
miles of sewer pipe were rehabilitated, 27,346 
manholes were inspected and 2,214 inspections 
of the Commission's unmanned pump stations 
were conducted. 
Sewer Lateral Progratn 

To ensure the proper operation of a building's 
sewer or storm drain, the Commission provides 
direct financial assistance to property owners 
whose buildings' sewers or storm drains are 
completely blocked or broken and require exca- 
vation in the public way to repair. In 1995, the 
Commission reimbursed 83 property owners a 
total of $238,798 to repair their sewer laterals or 
storm drains. 



""^^^^H 



The Commission 
continued its strategy 
of intelligent, directed 
investments in its 
water, sewer and 
drainage systems. 




Enhancing Service w i t ii 
System Improvements 




,. V % 





m izing \ 
' e s our c e 



■A'- , C* 



n 1995, the Commission continued to target 
areas where it could secure financial and techni- 
cal assistance to implement cost-effective solu- 
tions to challenging and complex problems. The 
ability to recognize that sharing resources often 
produces better, more cost-effective solutions to 
common problems is yet another example of the 
Commission's innovative savings and service. 

Combined Sewer Overflow (CSO) 
Control Program 

The Commission formalized its participation in 
MWRA's Combined Sewer Overflow (CSO) Plan. 
In 1996, the Commission and MWRA will enter 
into a Memorandum of Understanding and exe- 
cute a Financial Assistance Agreement to enable 
the Commission to complete significant separa- 
tion of its combined sewer system in Dorchester 
and East Boston, and other CSO control pro- 
jects. MWRA estimates this work will result 
in $120 million in improvements to the 
Commission's sewerage and drainage systems. 
This work will enable the Commission to close 
its CSO outfalls that discharge to the beaches 
and critical shellfish areas of the Neponset River, 
Dorchester Bay and Constitution Beach. 

System Optitnization Plan (SOP) 
Grant Program 

System Optimization Plans (SOPs) are defined 
by MWRA as minor modifications and improve- 
ments to a combined sewer system to maximize 
its storage and transport capacity, and reduce 
the volume and frequency of CSO discharges. 
Prior to implementing the CSO Control 



Program, the Commission took advantage of an 
approximately $3 million grant from MWRA to 
complete numerous SOP projects to reduce 
CSO discharges. 
Infiltration/Inflow (I/I) Removal 

Infiltration and inflow (1/1) are groundwater and 
stormwater runoff that enter the sewer system. 
I/I decreases capacity in the sewer system to 
transport sanitary waste and is an unnecessary 
cost to Commission customers, since treatment 
costs are based in part on total flow to MWRA 
treatment plants. The Commission is aggres- 
sively eliminating I/I in the sewer system. By 
participating in MWRA's I/I Local Financial 
Assistance Program, the Commission has 
secured $7.5 million to remove an estimated 
52 million gallons per day of peak I/I from the 
sewer system. 

Comtnon wealth of Massachusetts 
State Revolving Loan Fund (SRF) 

The Massachusetts Water Pollution Abatement 
Trust and the Department of Environmental 
Protection administer a subsidized loan program 
for communities to complete sewer system 
improvement projects. The Commission is 
participating in this program and has secured 
$8.6 million for the St. James Avenue Interceptor 
and the Boston Main Interceptor Projects. 
An additional $10.8 million was also secured 
for five other projects. The Commission also 
received approximately $ 1 million in 1995 
from the Commonwealth's Sewer Rate 
Relief Fund. 



By taking 
advantage of 
financial assistance 
programs, the 
Commission is malcing 
needed improvements 
to its sewerage system 
and saving tlie 
ratepayers 
money. 




Securing Financial and 
Teciinicai Assistance 




In 1995, the 

Commission received 

an Environmental 

Leadership Award 

from the 

Save The Harbor/ 

Save The Bay 

environmental 

organization. 



Public awareness and concern for environmental 
protection is growing. The Commission is proud 
of its proactive initiatives and leadership in 
improving water quality in Boston. The 
Commission is expanding its Harbor Quality 
Department and will continue to identify and 
implement cost-effective measures that produce 
environmental benefits. 
Environmental Leadership Award 

In 1995, the Commission received an 
Environmental Leadership Award from the Save 
The Harbor/Save The Bay environmental organi- 
zation for its efforts and success in reducing 
pollution in Boston's waters. This prestigious 
honor validates the importance of the work 
Commission crews do each day to safeguard 
against degradation of Boston's rivers, beaches 
and historic harbor. 

Illegal Connection 
Remediation Program 

Sanitary sewage connections from homes or 
businesses, that are incorrectly tied to a storm 



drain rather than a sewer, result in the discharge 
of untreated sewage directly into a river, 
beach or Boston Harbor These connections 
violate the federal Clean Water Act and 
Commission regulations. The Commission insti- 
tuted a program in 1983 to identify and correct 
illegal connections at no direct cost to residential 
property owners. This program is considered a 
model by the Environmental Protection Agency 
(EPA) for other communities to adopt. In 1995, 
51 illegal connections were corrected, removing 
an estimated 9,100 gallons per day of untreated 
sewage that was previously being discharged to 
surface waters in Boston. 
Controlling CSO Discharges 

In 1995, the Commission conducted approxi- 
mately 2,132 inspections of its combined sewer 
system to ensure that it operates properly and 
that its CSOs are minimized. This work helped 
the Commission achieve a 48% reduction in the 
volume of CSOs from 1994 while total precipita- 
tion only decreased by 33%. 



Env ir n nm, p nt al 



Stewardship: 



Ensuring Cleaner 

Waters in Boston 



Jndepf^ndent Auditors' Report 



The Commissioners 

Boston Water and Sewer Commission: 

We have audited the accompanying balance sheets of the Boston Water and Sewer Commission 
(the "Commission") as of December 31, 1995 and 1994, 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 responsibility is to express an opinion on these 
financial statements based on our audits. 

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

In our opinion, the financial statements referred to above present fairiy in all material respects, the 
financial position of the Commission at December 31, 1995 and 1994 and the results of its operations 
and its cash flows for the years then, ended in conformity with generally accepted accounting 
principles. 

Our audits were made for the purpose of forming an opinion on the basic financial statements 
taken as a whole. The attached Supplemental Schedule of Revenues and Expenses — Rate Basis is 
presented for purposes of additional analysis and is not a required part of the basic financial state- 
ments. Such information 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. 

The Commission adopted the provisions of Governmental Accounting Standards Board Statement 
No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues. 



\^?M«, J^/viM-tL 



March 29, 1996 



Balance Sheets 



December 31, 1995 and 1994 



Assets 1995 1994 

Current assets: 

Cash and cash equivalents (note 8) 
Accounts receivable; 

Customers, less allowances of $6,401,080 in 1995 

and $7,723,949 in 1994 (note 1) 
Unbilled revenues, less allowances of $1,702,361 
in 1995 and 1994 (note 1) 
Construction grants receivable 
Prepaid expenses 
Deferred compensation plan assets (note 13) 

Total current assets 

Investments (notes 4 and 8) 

Property, plant and equipment, net (note 3) 

Deferred charges (note 2) 

Bond issue costs, net 

Total assets $809,504,518 $768,015,687 

Liabilities and Commission Equity 

Current liabilities: 

Payable from current assets: 

Accounts payable $ 10,570,956 $ 10,841,490 

Other accrued liabilities 7,956,650 7,052,248 

Current portion of revenue bonds (note 4) 91,080,000 4,695,000 

109,607,606 22,588,738 

Payable from trusteed assets: 

Current portion of City of Boston bonds (note 4) 65,000 195,000 

Total current liabilities 109,672,606 22,783,738 

Long-term debt (note 4) 277,211,066 367,721,063 

Long-term notes payable (note 4) 18,103,070 9,331,328 

Deferred compensation plan liability (note 13) 3,050,527 2,430,175 

Other long-term liabilities 39,714,801 22,333,095 

Deferred credits and reserves (note 2) 241,229,145 222,876,765 



$ 5,447,550 


$ 5,134,635 


24,541,870 


20,266,671 


8,553,520 


8,416,669 


1,351,519 


1,797,103 


388,048 


730,306 


3,050,527 


2,430,175 


43,333,034 


38,775,559 


331,960,852 


319,738,498 


394,813,124 


367,579,672 


35,096,998 


37,179,669 


4,300,510 


4,742,289 



Total liabilities 


688,981,215 


647,476,164 


Commission equity: 
Contributed capital 


120,523,303 


120,539,523 


Commitments and contingencies (notes 9, 10 and 12) 
Total liabilities and commission equity 


$809,504,518 


$768,015,687 



See accompanying notes to financial statements. 



10 



I Statementfi of Oppratinns 

I Years Ended December 31, 1995 and 1994 



Operating revenues: 

Water and sewer usage 

Fire pipe 

Other 



5182,329,845 
2,334,589 
3,176,442 



35,669,000 
2,197,270 
3,509,789 



Total operating revenues 



187,840,876 



191,376,059 



Operating expenses; 

Operations 

Maintenance 

MWRA assessment (note 5) 

Depreciation and amortization 



50,817,277 

7,437,583 

98,650,422 

12,151,610 



Accumulated revenues used to offset future rates -end of year $ 8,758,602 



50,840,829 

8,705,946 

99,589,282 

11,609,869 



Total operating expenses 


169,056,892 


170,745,926 


Excess operating revenues 


18,783,984 


20,630,133 


Nonoperating revenue (expense): 

Interest income 
Interest expense 


19,924,461 
(22,360,845) 


15,648,552 
(20,875,519) 


Total nonoperating expense 


(2,436,384) 


(5,226,967) 


Excess revenues before depreciation add-back 

and transfer requirements 
Add: Depreciation on fixed assets acquired by grants 


16,347,600 
2,004,780 


15,403,166 
1,845,540 



Excess revenue before transfer requirements 18,352,380 17,248,706 

Excess revenues used to fund reserves and other 

deferrals (note 2) (19,934,463) (19,965,487) 

Accumulated revenues used to offset future rates - beginning 

of year 10,340,685 13,057,466 



$ 10,340,685 



See accompanying notes to financial statements. 



11 



statements ofCommissinn Equity 

Years Ended December 31, 1995 and 1994 



Contributed 
Capital 

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

Contributions in aid of construction 1,603,784 

Depreciation of related property (1,845,540) 

Balance, December 3 1 , 1994 120,539,523 

Contributions in aid of construction 1,988,560 

Depreciation of related property (2,004,780) 

Balance, December 31, 1995 $120,523,303 

See accompanying notes to financial statements. 



12 



statements of Cash Flows 



Years Ended December 31, 1995 and 1994. 



1995 



Operating activities: 

Excess operating revenues 

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

other deferrals 
Depreciation and amortization 
Change in assets and liabilities: 

Accounts receivable, net 

Unbilled revenues 

Construction grants receivable 

Prepaid expenses 

Accounts payable 

Other accrued liabilities 

Deferred credits 

Other long-term liabilities 



$18,783,984 


$20,630,133 


(18,352,380) 


(17,248,706) 


12,151,610 


12,299,545 


(4,275,199) 


7,126,034 


(136,851) 


583,875 


445,584 


(32,794) 


342,258 


123,686 


(270,534) 


1,942,123 


904,402 


1,053,667 


18,352,380 


17,248,706 


17,381,705 


12,205,698 



Net cash provided by operating activities 


45,326,959 


55,931,967 


Investing activities: 

Purchase of investments 
Interest income 


(12,222,354) 
19,924,461 


(58,252,406) 
15,648,552 


Net cash provided by (used for) investing activities 


7,702,107 


(42,603,854) 



Capital and related financing activities: 

Additions to property plant and equipment (36,860,608) (27,418,081) 

Proceeds from notes payable 8,771,742 543,835 

Proceeds from issuance of bonds — 40,000,000 

Bond issue costs — (305,000) 

Payment on bonds, including current maturities (4,255,000) (5,575,000) 

Contributions in aid of construction 1,988,560 1,603,784 



Payment of bond interest 


(22,360,845) 


(20,875,519) 


Net cash used for capital and related 
financing activities 


(52,716,151) 


(12,025,981) 


Net increase in cash and cash equivalents 
Cash and cash equivalents at beginning of year 


312,915 
5,134,635 


1,302,132 
3,832,503 


Cash and cash equivalents at end of year 


$ 5,447,550 


$ 5,134,635 



See accompanying notes to financial statements. 



13 



JVntPs to Financial Statements 

December 31, 1995 and 1994 



Organization, Basi 



of Presentation and Summary of 



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

Under the Enabling Act, the Commission is subject to regulation with respect to rates, accounting and other matters, where applica- 
ble, by the Board of Commissioners (the "Board"). The Board regulates the rates that the Commission can charge its customers for 
water 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-71"), "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 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, 1995 is provided below: 



As presented in tlie Statement of Operations: 

Operating revenues/expenses 
Other revenues/expenses 

Total 

Reclassifications and deferrals: 

Contributions to reserves 

Revenue adjustments/bad debt expense 

Excess depreciation and amortization over 

bond payments 
Interest expense (escrowed funds) 
Interest income (escrowed funds) 
Capital expenditures 

Excess revenue used to offset current rates 
Other deferrals 



Revenues 


Expenses 


$187,840,876 


$169,056,892 


19,924,461 


22,360,845 


207,765,337 


191,417,737 





14,372,282 


(18,080,388) 


(18,080,388) 





(7,737,463) 


— 


(6,620,645) 


(6,892,285) 


— 


— 


10,958,162 


10,340,685 


— 


— 


65,062 



As presented in the Supplemental Schedule 



$193,133,349 



$184,374,747 



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 $8,758,602 and $10,340,685 for the years ended 
December 31, 1995 and 1994, 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. Revenues are accrued for periods between the 
termination of billings for the various cycles and the end of the year Various adjustments are made on a postbilling basis that reduce 
the amount of total billings. Accordingly the 1995 and 1994 total customer bills outstanding of $42,830,670 and $45,073,977, respec- 
tively have been reduced by provisions for billing adjustments and sewer abatements of $9,510,176 and $2,377,544, respectively in 
1995 and $13,141,044 and $3,942,313, respectively in 1994. These net bOling amounts are further reduced by an allowance for uncol- 
lectible accounts of $6,401,080 in 1995 and $7,723,949 in 1994, to arrive at net accounts receivable. 

(b) Investments 

Investments, consisting of direct and unconditionally guaranteed short-term obligations of the U.S. Government, repurchase agree- 
ments 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 esti- 
mated usefijl 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 usefiil lives. The Commission 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 1995 or 1994 
because the difference between interest expense and interest income on unexpended proceeds was not material. 



14 



ate s to Financial Statements 

December 31, 1995 and 1994 



(d) Depreciation 

Estimated useful lives used in computing depreciation are as follows: 



Works 
Meters 
Hydrants 



100 
10 

40 



Sewerage: 

Works 

Pumping station 
Other 



Years 

75 

35 

4 to 14 



(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 directly 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) Proprietary Activity Accounting and Financial Reporting 

Under the Governmental Accounting Standards Board Statement (GASB) No. 20, Accounting and Financial Reporting for 
Proprietary Activities, the Commission has elected the option to apply all Financial Accounting Standards Board Statements (FASH) 
and Interpretations issued on or before November 30, 1989, except those that conflict with or contradict GASB pronouncements. 

(i) Reclassifications 

Certain amounts in the 1994 financial statements have been reclassified to conform to the 1995 presentation. 

2. Deferred Charges and Credits 

As discussed in note 1, the application of FAS-71 results 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 sheets 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: 



1995 



1994 



Contributions to reserves 

Principal payments on long-term debt 

Interest paid from escrow funds 

Capital expenditures 

Depreciation 

Interest income on project and escrow funds 

Other 



$14,372,282 
4,125,000 
(6,620,645) 
10,958,162 
(7,622,380) 
6,892,285 
(2,170,241) 



$13,718,866 
4,875,000 

(4,231,826) 
9,552,023 

(7,111,683) 
5,410,492 

(2,247,385) 



Total 



$19,934,463 



$19,965,487 



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



Accrued pension expense 
Debt extinguishment expense 



$15,283,666 
19,813,332 



115,572,813 
21,606,856 



Total deferred charges 



$35,096,998 



$37,179,669 



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



December 31, 
1994 



Increase 
(Decrease) 



Debt service 
Capital improvements 
Working capital 
Self-insurance 



$ 45,880,695 

106,908,388 

57,506,997 

2,240,000 



$14,372,281 
5,562,182 



December 31, 
1995 



$ 60,252,976 

112,470,570 

57,506,997 

2,240,000 



Subtotal 
Reduction of fijture rates 



212,536,080 
10,340,685 



19,934,463 
(1,582,083) 



232,470,543 
8,758,602 



Total deferred credits 



$222,876,765 



$18,352,380 



$241,229,145 



15 



Notes to Financial St at em tints 

December 31, 1995 and 1994 



3. Property, Plant and Equipment 

The cost of water and sewerage property, plant and equipment in service and related accumulated depreciation at December 31, 
1995 and 1994 are as follows: 



1995 



1994 



Water: 

Works 

Meters and hydrants 



$135,147,076 
17,693,699 



$126,942,753 
16,155,965 



Total water 


152,840,775 


143,098,718 


Sewerage: 

Works 
Pumping station 


198,482,540 
6,818,570 


192,056,760 
6,818,570 


Total sewerage 


205,301,110 


198,875,330 


Other 

Total 
Less accumulated depreciation 


55,395,196 

413,537,081 

73,701,462 


49,462,351 

391,436,399 

65,006,460 


Total 
Construction in progress 


339,835,619 
54,977,505 


326,429,939 
41,149,733 


Total 


$394,813,124 


$367,579,672 



4. Long-term Debt 

At the time of its creation, the Commission assumed general obligation certificates of indebtedness of the City (the "City bonds") per- 
taining to the water and sewer systems. Payments of principal and interest are made directly to the City in accordance with the origi- 
nal maturity and interest schedules. The Commission also issues revenue bonds to support various projects. 

A summary of the City bonds and revenue bonds outstanding as of December 3 1 , 1995 and 1994 follows (amounts in thousands) ; 



City bonds, bearing interest at rates ranging from 5-1% to 9.5% with maturity 
dates through December 1999 
Less current installments 



215 
65 



410 
195 



Total City bonds, net of current installments 



150 



$ 215 



Senior debt: 

1985 Series A, bearing a variable interest rate (5.1% and 4.9% at December 31, 1995 and 1994, 
respectively), maturing in two equal amounts on November 1, 2014 and 2015 

and requiring annual sinking fund contributions through 2014 and 2015, respectively 

1986 Series A, bearing interest at rates ranging from 7.4% to 7.88%, with maturity 
dates ranging from November 1, 1996 to 2015 

1989 Series A, bearing interest at a rate of 6.9% with a maturity date of November 1, 1999 

1991 Series A, bearing interest at rates ranging from 6.25% to 7.0%, with maturity dates 
ranging from November 1, 1996 to 2021 

1992 Series A, bearing interest at rates ranging from 4.6% to 6.1%, with maturity dates 
ranging from November 1, 1996 to 2013 

1993 Series A, bearing interest at rates ranging from 35% to 5.4%, with maturity 
dates ranging from November 1, 1996 to 2019 

1994 Series A, bearing a variable interest rate (4.7% and 5.3% at December 31, 1995 and 1994, 
respectively), with maturity dates ranging from November 1, 1996 to 2024 

Subordinated debt: 

1984 Series A, bearing interest at a rate of 10%, with a maturity date of January 1, 1996 
1988 Series A, bearing interest at rates ranging from 6.9% to 7.4%, with maturity dates 
ranging from November 1, 1996 to 2008 



$ 45,920 



% 46,685 



51,870 


52,865 


585 


585 


16,480 


17,205 


67,065 


67,895 


97,610 


97,670 


39,500 


40,000 


1,610 


1,610 


53,540 


54,360 



Less current installments 


374,180 
91,080 


378,875 
4,695 


Total long-term revenue bonds 
Less unamortized issue discount 


283,100 
6,039 


374,180 
6,674 


Net long-term revenue bonds 


$277,061 


$367,506 



16 



JVn tfis to Financial St atpm.ents 

December 31, 1995 and 1994 

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





City Bonds 


Revenue Bonds 


Totals 






Principal 


Interest 


Principal 


Interest 


Principal 


Interest 


1996 


« 65 


$15 


$ 91,080 


$ 22,884 


$ 91,145 


$ 22,899 


1997 


50 


10 


6,750 


16,592 


6,800 


16,602 


1998 


50 


7 


7,115 


16,187 


7,165 


16,194 


1999 


50 


3 


8,815 


15,737 


8,865 


15,740 


2000 


— 


— 


9,435 


15,192 


9,435 


15,192 


Thereafter 


— 


— 


250,985 


154,370 


250,985 


154,370 


Total 


$215 


$35 


$374,180 


$240,962 


$374,395 


$240,997 



The 1984 Series A Bonds were issued 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 benefit thereunder. 

The 1985 Series A Bonds were issued to provide funds for projects under the Commission's ongoing capital improvement program 
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-over refunding and new 
money issue. The 1986 Bonds provide funds for the Commission's ongoing capital improvement program and other capital and 
operating needs. In addition, a portion of the proceeds 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 provided under the 1985 Bonds and has secured a guaranteed 
redemption for the 1985 Bonds on November 1, 1996. As a result, the outstanding balance of $45,920,000 is classified as current at 
December 31, 1995 and will be paid from the 1986 escrow funds. 

In December 1988, the Commission issued 1988 Series A Bonds to provide for the defeasance of a portion of the 1984 Series A Bonds 
(subsequently paid January 1, 1995), to provide supplemental funding for the Operating Reserve Fund and to pay costs of issuance. 
In December 1989, the Commission issued 1989 Series A Bonds to provide funds 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 funds 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, 1997 
through November 1, 2021. 

In September 1992, the Commission issued 1992 Series A Bonds to provide funds for 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 refunding transaction. Under the 1992 Refunding Trust 
Agreement, the Commission deposited sufficient funds with the Bond Trustee to pay when due the principal and interest on the 
advanced refunded bonds until the first call date, November 1, 1996. As a result, this transaction qualifies as an in-substance defea- 
sance 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. The outstanding debt is classified as 
current at December 31, 1995 and will be paid from the 1992 cross-over funds. 

In March 1993, the Commission issued $100,505,000 of General Revenue Bonds, 1993 Series A to advance refund a portion of the 
1984 Series A (Subordinated Series), a portion of the 1989 Series A (Senior Series) and a portion of the 1991 Series 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 refunded 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 payments over the next 26 years by almost $7,426,000 and 
to obtain an economic gain of $6,256,720. 

In October 1994, the Commission issued $40,000,000 of General Revenue Bonds, 1994 Series A to provide funds for projects under- 
taken as part of the Commission's ongoing capital improvement program. The Commission maintains a letter of credit to guarantee 
the principal and interest payments on these bonds maturing November 1, 1996 through 2024, in the event that the Commission is 
unable to make such payments. 

In the aggregate $162,990,000 remains outstanding at December 31, 1995 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 funds provided for in the Resolution. The Resolution provides 
that all excess cash be held in the Revenue Fund until the last business day of the fiscal year. At that time, if certain covenants are met, 
the Commission has the option to remove any excess cash from the Revenue Fund and place such cash in a fund not restricted by 
the Resolution. 

The Commission has options for early redemption of revenue bonds starting in 1996 at prices ranging from 100% to 103% of face 
value. In addition, in compliance with the Resolution, the Commission has established both trusteed and nontrusteed funds with 
investments, principally short-term securities, which are restricted for payment of specified liabilities, capital projects or other costs 
of operations. The components of the trusteed and nontrusteed investments at December 31, 1995 and 1994 are as follows: 

17 



Nates to Financial Stat p. merits 

December 31, 1995 and 1994 



Trusteed: 

U.S. Treasury notes 

Other government obligations 

Money market and cash investments 

Open-ended mutual funds 

Commercial paper 

Repurchase agreements 



96,512,359 
29,585,647 
29,458,282 

24,844,277 
36,151,225 
47,917,612 



$ 83,874,713 
30,275,214 
33,719,591 
11,683,829 
37,230,321 
50,323,709 



264,469,402 



247,107,377 



Nontrusteed: 

U.S. "D-easury notes 
Money market and cash investments 
Open-ended mutual funds 
Commercial paper 



3,488,633 

30,762,366 

8,343,211 

3,516,625 



6,631,692 
18,439,640 
11,063,653 



Repurchase agreements 


21,380,615 


36,496,136 




67,491,450 


72,631,121 


Total 


$331,960,852 


$319,738,498 



Long-Term Notes Payable: 

During 1995 the Commission executed loan agreements with the Massachusetts Water Pollution Abatement Trust ("MWPAT") to 
finance and refmance a portion of the Commission's water pollution abatement projects. As of December 31, 1995, an aggregate 
amount of $15,340,208 was received by the Commission. The Commission is eligible to receive the remaining $3,593,641 once 
the projects are completed. For purposes of offsetting principal and interest payments, an amount aggregating approximately 
$16,716,000 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 construction over the term of the loan. The long-term portion of the loan agree- 
ments with MWPAT is $14,707,261 at December 31, 1995. The scheduled loan payments for all MWPAT obligations and related subsi- 
dies are shown below (amounts in thousands): 



Scheduled Loan Repayments 



Loan Subsidy Amounts 



Net Loan Repayments 













Contract 


















Equity 


Assistance 












Principal 


Interest 


Total 


Earnings 


Payments 


Total 


Principal 


Interest 


Total 


1996 


$ 633 


$ 992 


$ 1,625 


$ 501 


$ 599 


$ 1,100 


$ 333 


$ 192 


$ 525 


1997 


656 


967 


1,623 


487 


597 


1,084 


351 


188 


539 


1998 


684 


938 


1,622 


466 


599 


1,065 


373 


184 


557 


1999 


715 


907 


1,622 


450 


597 


1,047 


397 


178 


575 


2000 


749 


873 


1,622 


430 


599 


1,029 


422 


171 


593 


Thereafter 


15,498 


6,904 


22,402 


3,307 


8,084 


11,391 


9,620 


1,391 


11,011 


Total 


$18,935 


$11,581 


$30,516 


$5,641 


$11,075 


$16,716 


$11,496 


$2,304 


$13,800 



The Commission entered into various interest-free loan agreements with the Massachusetts Water Resource Authority (the 
'Authority") during fiscal 1995 and 1994. Under these agreements, the Commission received $2,110,501 and $1,488,236 in 
1995 and 1994, respectively, 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 these loans at December 31, 1995 is $3,395,808. 
This program is designed to assist service area communities with sewer system rehabilitation. 

5. 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 (July 1 to June 30) and 
payments are due to the Authority in four equal installments in September, November, March and May. Interest is not charged on 
the outstanding balance. Amounts included in the Statements of Operation for assessments by the Authority for 1995 and 1994 are 
as follows: 



Assessments allocated on: 
Water usage 
Wastewater usage 



$28,097,916 
70,552,506 



$28,247,069 
71,342,213 



Total 



$98,650,422 



$99,589,282 



During both 1995 and 1994, over 74% 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 74% in 1995 and is continuing to take steps to 
improve the amount of billable water, including replacement of old and defective meters and implementation of a comprehensive 
leak detection and repair program. 



18 



Notes to Pin an rial Statements 

December 31, 1995 and 1994 



6. Transactions with the City of Boston 

The Commission's ongoing program to meter City of Boston facilities has resulted in billings to nine City departments based on 
actual consumption of approximately $2,771,000 and 13,002,000 in 1995 and 1994, respectively 

The City provides services to the Commission, including paving and facilities rental. Operating costs billed to the Commission by the 
City were approximately $1,081,000 and $1,760,000 during 1995 and 1994, respectively Capital costs billed by the City were approxi- 
mately $4,149,845 and $3,445,000 during 1995 and 1994, respectively 

The Commission has an agreement with the City that allows the Commission's water and sewer bills that have remained unpaid for 
more than two years to be added as liens on the City's property tax bills. Under this agreement, the City provides collection services 
on these bills for an administrative fee. In 1995, approximately $7.0 million of billings were included on property tax bills and approxi- 
mately $1.6 million of this amount was collected and remitted to the Commission. During the last quarter of 1995, the Commission 
implemented its own tax lien program that will be fully operational for all of fiscal 1996. 

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 pro- 
vide 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 settlement 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, level of compensation and 
group classification. 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 and the Trust Fund 

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 provides for retirement allowance benefits 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 compen- 
sation and group classification. 

Members become vested after ten years of creditable service. A superannuation retirement allowance may be received upon the com- 
pletion 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 who become permanently and totally disabled from further duty may be 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 dis- 
ability is work-related, the member's age, years of creditable service, level of compensation, veteran's status and group classification. 
Employees who resign and are not eligible to receive a retirement allowance or who are under the age of 55 are entided to request a 
refijnd of their accumulated total deductions. In addition, depending upon the number of years of creditable service, such employ- 
ees are entided 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 SBRS plan is funded by the assets held in the Trust Fund as well as assets earmarked for the Commission held as part of 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 
future benefits, net of employee contributions. 

The Commission's Trust Fund 

(a) Valuation of Investments 

Trust Fund assets at December 31, 1995 and 1994 are as follows: 



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

Mutual funds 
Fixed income 

Total 



$18,625,462 

18,950 

2,313,722 

14,290,407 

$35,248,541 



$16,420,065 

336,500 

398,065 

10,113,713 

$27,268,343 



19 



Notes to Financial Statements 

December 31, 1995 and 1994 



The investment portfolio is regulated by the MGL, Chapter 32, Section 23. The investments are managed by independent investment 
advisors. Fleet Bank of MA, N.A., is the custodian of the portfolio. 

(b) Funding Status and Progress 

The Commission's funding policy has been to provide for quarterly employer contributions to the Tl-ust Fund based upon an actuari- 
ally determined rate using the aggregate actuarial cost method. The Commission's contributions totalled approximately $780,000 in 
1995, 1760,000 in 1994 and 1781,000 in 1993. As a percentage of the covered payroll this amounts to 4.0% in 1995, 1994 and 1993. 
The Commission's covered payroll was approximately $19,503,000, $18,855,000 and $19,327,000 in 1995, 1994 and 1993, respectively 
Total payroll was approximately $21,014,000, $20,255,000 and $21,051,000 in 1995, 1994 and 1993, respectively 

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



1995 



Net assets available for benefits 



$27,268,343 



1994 



$27,489,689 



Pension benefit obligation: 

Retirees and beneficiaries currently receiving benefits and terminated 
employees entitled to benefits but not yet receiving them 

Current employees: 

Employer-financed vested 
Employer-financed nonvested 



5,543,304 

11,390,995 
663,558 



4,791,898 

13,534,959 
1,933,861 



Total pension benefit obligation 



17,597,857 



20,260,718 



Net assets in excess of pension benefit obligation 



$ 9,670,486 



$ 7,228,971 



In compliance with Statement No. 5 of the Governmental Accounting Standards Board, the January 1, 1995 PBO was computed 
through an actuarial valuation. The significant assumptions used in the calculation of the PBOs as of January 1, 1995 and 1994 include 
annually compounded rates of return of 7.5%, on present and future assets and projected salary increases, due to inflation, of 5% per 
year, compounded annually The January 1, 1995 actuarial valuation was based on 145 retired and inactive employees and 559 active 
employees. These assumptions are the same as those used to determine actuarial contribution requirements. 

(c) Historical Trend Information 

Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. Net assets 
available for benefits as a percentage"of the PBO are 155% for 1995 and 136% for 1994 and 1993. The excess assets as a percentage of 
covered payroll are 50%, 38% and 33% for 1995, 1994 and 1993, respectively Ten-year historical trend information for the Trust Fund 
is included in the statistical section of the Commission's comprehensive annual financial report. 

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 funding status of the system on a going-concern basis, assess progress made in accumu- 
lating sufficient assets to pay benefits when due, and make comparisons among systems. Employee contributions are actuarially 
determined as defined under MGL, Chapter 32. Total employee contributions, based on the actuarially determined amounts, were 
approximately $1,449,000, $1,388,000 and $1,412,000 or 7.4%, 7.4% and 7.3% of covered payroll in 1995, 1994 and 1993, respectively 
The Commission's covered payroll and total payroll is disclosed under the Ti^ust Fund. 

The PBO was computed as part of an actuarial valuation performed as of January 1, 1994. 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 future assets of 10% a year and (d) retirement age assumptions of 64, 62 and 60 for various 
groups. 

Total unfijnded PBO of SBRS and an estimate of the Commission's share as provided by SBRS at June 30, 1994 (die latest data 
available) are as follows (in thousands): 



20 



Notes to Financial Statements 

December 31, 1995 and 1994 



Commission 



Retirees and beneficiaries currently receiving benefits and 
terminated employees not yet receiving benefits 

Current employees: 

Accumulated employee contributions including investment earnings 

Employer-financed vested 

Employer-financed nonvested 

Cost-of-living adjustments ("COLA") reimbursable by the 



$1,056,177 



$13,600 



653,118 


12,668 


328,105 


6,762 


166,055 


3,201 



Commonwealth of Massachusetts 


270,897 


4,043 


Total pension benefit obligation 
Net assets available for benefits, at market 


2,474,352 
1,450,059 


40,274 
26,103 


Unftjnded pension benefit obligation 
Effect of COLA 


1,024,293 
270,897 


14,171 
4,043 


Unfunded pension benefit obligation, net of COLA 


$ 753,396 


$10,128 



(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 calculated 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 4.5% per year, of the unfunded actuarial liability resulting from 
retiree liabilities frozen at July 1, 1991 (8 years remaining). 

3. 29-year amortization, in an amount increasing by no more than 4.5% per year, of the unfunded actuarial liability resulting firom 
active liabilities (25 years remaining). 

4. 15-year amortization of the unfunded actuarial liability resulting from actuarial gains and losses (11 years remaining). 

5. 15-year amortization of actuarial (gain) or loss as of July 1, 1992 (12 years remaining). 

6. 15-year amortization of actuarial (gain) or loss as of July 1, 1993 (13 years remaining). 

The Commission's contribution to SBRS represents less than 1% of the total contribution. 

(d) Special Termination Benefits 

During 1994, certain Commission employees participated in an early retirement incentive program. As a result, the Commission's 
annual contribution to the SBRS will increase approximately $70,000 per year. 

(e) 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, 1994, 1993 and 
1992, available assets were sufficient to fund 59%, 58% and 54% of the PBO, respectively Unfunded PBO represented 133%, 138% and 
154% of the annual payroll for employees covered by the SBRS for 1994, 1993 and 1992, respectively 

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 fully collateralized and issued by 
FDIC-insured banks. Investments 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. 

(a) Deposits 

A summary of the Commission's deposits that are (Category 1) fully 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 finan- 
cial institution's trust department or agent in the Commission's name and (Category 3) those deposits that are not collateralized as of 
December 31, 1995 follows: 

Total 





1 


Category 

2 


3 


Bank 
Balance 


Carrying 
Amount 


Cash 

Bank money market deposits 


$482,014 


— 


$ 1,966,172 
63,234,869 


$ 2,448,186 
63,234,869 


$ 5,447,550 
60,220,648 


Total 


$482,014 


- 


$65,201,041 


$65,683,055 


$65,668,198 



Deposits in transit account for the majority of the cash difference between the bank balance and the carrying amount. 

(b) Investments 

The Commission's investments are categorized according to the level of risk assumed by the Commission. Category 1 includes invest- 
ments that are insured, registered or held by the Commission's trustee in the Commission's name. Category 2 includes uninsured 



21 



N ntp s to Financial Statements 

December 31, 1995 and 1994 



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: 





1 


Category 

2 


3 


Carrying 
Amount 


Estimated 
Market 
Value 


Categorized: 

U.S. Government obligations 
U.S. Government Agency obligations 
Repurchase agreements 
Commercial paper 


$100,000,992 
29,585,647 


$ — 

69,298,227 
39,667,850 


- 


$100,000,992 
29,585,647 
69,298,227 
39,667,850 


1 99,750,512 
28,965,387 
69,298,227 
39,480,000 








— 


«238,552,716 


$237,494,126 


Not categorized: 

Open-end mutual funds 








33,187,488 


33,187,488 


Total 


$129,586,639 


$108,966,077 


- 


$271,740,204 


$270,681,614 



$ 1,178,963 


$ 712,241 


1,227,386 


238,653 


1,254,057 


206,273 


1,313,798 


14,166 


1,342,993 


— 


36,653,679 


— 


$42,970,876 


$1,171,333 



9. Lease Commitments 

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. 

Minimum lease commitments under all operating leases with terms in excess of one year at December 31, 1995 are as follows: 

Office Otiier 

1996 
1997 
1998 
1999 
2000 
Thereafter 

Total 
Rent expense under operating leases amounted to $2,036,046 and $1,957,922 in 1995 and 1994, respectively 

10. Cornmitments 

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 $53 million as 
of December 31, 1995. Capital improvements, primarily related to water and wastewater system projects with an emphasis on the 
cleanup of the Boston harbor area, are expected to aggregate approximately $77.7 million for 1996 through 1997. Of this amount, 
approximately $56.6 million represents extension and improvement projects and $21.1 million represents renewal and replacement 
projects. The extension and improvement projects will be 35% funded by federal and state grants and loans and Authority grants 
and loans. The remaining amounts will be funded from the Commission's bond proceeds, the sale of surplus property and operating 
revenues. 

11. Risl( iVIanagement and Other Insurance 

The Commission carries self-insured retention limits for claims filed under workers' compensation and general liability and completely 
self-insures for all unemployment benefits. The workers' compensation self-insured retention limits are $300,000 (formeriy $250,000) 
per claim, $1,868,000 aggregate and are supplemented with $5 million in excess coverage purchased through an outside carrier. For 
general liability the Commission's self-insured limits are $1 million per occurrence, $2.5 million aggregate and are subordinate to 
$5 million of excess coverage purchased through an outside carrier. Under the sections of the Model Water and Sewer Act, the 
Commission's tort liability is capped at $100,000 per claimant. 

The Commission maintains other insurance coverage as follows: 



Policy Type 



Coverage 



Health 

Vehicles 

Property 

Public Officials 

Fiduciary 

Crime 



Premium Based 

Combined single limit of $1 million 

Coverage of $31,647,952; limit of $10 million for loss due to earthquake/flood 

Coverage of $3 million (formeriy $5 million); $100,000 self-insurance retention 

$2 million coverage 

Employee dishonesty coverage of $5 million 



22 



Notes to Financial Statements 

December 31, 1995 and 1994 

The Commission participates in tJie City's health benefit plans for which the City asscbbcs monthly premiums to the Commission 
based on current enrollments. Insurance claims for all policies have not exceeded coverage by a material amount in the past three 
years. 

Effective January 1, 1995, the Commission adopted the provisions of Governmental Accounting Standards Board No. 10, which 
requires that liabilities for self insured claims be reported if it is probable that a loss has been incurred and the amount can be reason- 
ably estimated. The Commission has established a liability based on historical trends of previous years and attorney's and indepen- 
dent insurance appraiser's estimates of pending matters and lawsuits in which the Commission is involved. Unemployment claims 
paid during 1995 were immaterial. 

Changes for the years ended December 31, 1995 and 1994 are as follows: 

1995 1994 

Beginning balance of reserves $4,059,543 $4,500,378 

Payment of claims attributable to events of both current and prior years: 

Workers' compensation (327,592) (674,904) 

General liability (17,000) (168,972) 

Incurred claims 793,381 403,041 

Ending balance of reserves $4,508,332 $4,059,543 

Incurred claims represent the total of a provision for events of the current fiscal year and any change in the provision for events of 
the prior fiscal years. 

12. Contingencies 

The Commission is involved in ordinary and routine litigation and other matters related 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 agen- 
cies. Such audits could lead to requests for reimbursement to the grantor agency for expenditures disallowed under terms of the 
grant. The Commission believes such disallowances, if any, will not be significant. 

The Commission is involved as a defendant in litigation regarding the pollution of Boston Harbor Management believes that the 
Commission's extensive capital improvement program (see note 10) addresses probable actions that the Commission maybe 
required to undertake in connection with this litigation. Additionally, the Commission is likely to bear either directly or through 
future assessments of the Authority a substantial portion of the financial costs involved. As of December 31, 1995, the overall cleanup 
costs are estimated to be approximately $375 million. However, the portion of the costs that the Commission may be responsible for 
cannot been determined. 

The Commission has collected a large 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 cleanup 
in the financial statements. Additional costs associated with the cleanup may occur but cannot be reasonably estimated at this time. 

13. Deferred Compensation 

The Commission offers its employees a deferred compensation plan created in accordance with Section 457 of the U.S. Internal 
Revenue Code. 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 are made avail- _ 
able to the employee or other beneficiary) solely the property and rights of the Commission (without being restricted to the provi- 
sions 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 respect to each participant. Plan assets have been used for no 
purpose other than to pay benefits. In addition, the Commission believes that it is unlikely that it will use the assets to satisfy the 
claims of general creditors in the future. 

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 3 1 , 1995 , is as follows : 

Fund assets (at market value) January 1, 1995 $2,430,175 
Increase (decrease) in fund assets: 

Deferrals of compensation 272,739 

Earnings and adjustments to market value 368,447 

Payments, withdrawals and other reductions (20,834) 

Fund assets (at market value) December 31, 1995 $3,050,527 



23 



Supplemental Schedule of 

Revenues and Expenses - Rate Basis 

Years Ended December 31, 1995 and 1994 



Revenues: 

Water revenue 
Sewer revenue 



$ 65,964,976 
116,364,869 



$ 66,972,690 
118,696,310 



Adjustments 
Discounts 
Bad debt 



182,329,845 



12,763,652 

758,288 

4,558,448 



185,669,000 



13,072,142 

784,931 

4,667,952 



Total 



18,080,388 



18,525,025 



Net billed charges 

Prior year surplus 

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



Total revenues 



164,249,457 
10,340,685 

1,755,635 

11,276,541 

2,334,589 

3,176,442 



193,133,349 



167,143,975 
13,057,466 

2,774,021 
7,464,039 
2,197,270 
3,509,789 



196,146,560 



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 outlay 



20,971,994 

911,882 

3,058,562 

1,943,289 

7,437,583 

393,502 

1,272,585 

2,036,046 

751,079 

412,983 

703,543 

251,289 

947,607 



20,542,866 

903,217 

3,080,549 

1,972,179 

8,705,947 

454,011 

1,611,556 

1,957,922 

712,756 

517,024 

118,432 

295,804 

832,436 



Total direct operating expenses 



41,091,944 



41,704,699 



Nonoperating expenses 

IvTWRA assessment 
Capital improvements 
Principal payments 
Interest expense 
Deposits to reserve funds 
SDWA assessment 
Miscellaneous 



Total nonoperating expenses 



98,650,422 

10,010,555 

4,125,000 

15,740,199 

14,372,282 

280,511 

103,834 



143,282,803 



99,589,282 
8,985,359 
4,875,000 
16,643,693 
13,718,866 
288,976 



144,101,176 



Total current expenses 



184,374,747 



185,805,875 



Current year rate surplus 



$ 8,758,602 



$ 10,340,685 



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. 



24 



The Commission uses iiigli tech vactor trucics to clean its sewers. A hose, inserted 
into a sewer, shoots a stream of water that loosens any obstructions or accumulated 
sediment blocking a pipe. The loosened material is then removed by a vacuum 
attached to the vactor. 




This report was produced by the Executive Director's Office of the Boston Water and Sewer Commission with 
communication assistance from Austin & Associates. 



Design and Print Production: 
Photography: 



Champagne/Lafayette Communications Inc. 
Harry R. Happeny 



® 



This annual report was printed on recycled paper. 




Sewer Commissio 



425 Summer Street 

Boston, MA 02210 

61 7-330-9400