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ON PJJbUC LIBRARY 
GOVERN Rfit^r Q3CUteEWTS DEPARTMENT i 
RECEIVED 

JAN 4 1999 




Ar^sitM i^tpomT 



Boston Water and Sewer Commission 



Boston Water and 
Sewer Commission 



425 Summer Street 
Boston, MA 02210-1700 
61 7-330-9400 
Fax 617-330-5167 




August 1998 



Dear Colleague: 

I am pleased to present the Boston Water and Sewer Commission's 1997 Annual Report. 
This report highlights the achievements of the Commission in 1997 and our ability to insure, 
for an unprecedented fifth consecutive year, no water and sewer rate increase in 1998. 

The Commission maintains a strong record of providing high quality drinking water and 
wastewater collection services to the City of Boston. Believing that prospective action is the 
key to success, we will continue to identify and implement measures to improve the quality 
and efficiency of our services to save the ratepayers money. 

If you have any questions regarding the information presented in our 1997 Annual Report 
please do not hesitate to contact my office at (617) 330-9400. 



Sincereby, 




enclosure 



Digitized by the Internet Archive 

in 2010 with funding from 

Boston Public Library 



http://www.archive.org/details/annualreport1997bostsew 











79 ?7 - \9°^ 



Executive Director's Message 



o 



n July 18, 1977, the Boston Water and Sewer 
Commission (BWSC) was formed by the State 
Legislature to assume ownership and responsibility 
for the maintenance and operation of water and 
sewer services to Boston residents, businesses and 
institutions. The State Legislature directed the 
Commission to "avoid the . . . deterioration of the 
financial . . . and physical condition of Boston's 
water and sewer system, the need to 'protect natural 
resources' and insure the availability of . . . services 
at fair but sufficient rates." Twenty years later (in 
1997), I am proud to announce that the Commis- 
sion has exceeded the directive set by the State 
Legislature. 

When the Commission was formed in 1977, Boston's 
water and sewer infrastructure was in a state of 
neglect. Water mains and sewer pipes suffered leaks 
that were wasting water which in turn wasted money. 
The Commission acted, creating rehabilitative and 
preventive maintenance programs, such as a yearly 
Capital Improvement Program to help bring the 
system into order. A major result of the extensive 
repair and maintenance programs initiated through 
the annual CIP was Boston leading all major cities in 
the Northeast in the least number of main breaks per 
mile of pipe in 1997. In addition, during the 1980s 
and early 1990s water consumption was cut nearly in 
half. Utilizing the latest technology, the Commission 
has improved productivity, leading to the receipt 
of numerous awards for excellence in the environ- 
mental, engineering and financial fields. 

In the 1980s, the Boston Harbor Project brought an 
additional challenge of double-digit rate increases. 
The Commission met this challenge by increasing 
productivity and lowering costs and has not increased 
water and sewer rates from 1993 to 1997. In addition 
to maintaining a flat water and sewer rate for four 
consecutive years, the Commission received its 
highest bond rating ever in 1997. 



These past achievements serve as the impetus to 
future goals. The Commission continues its mission 
of providing the best possible service at the lowest 
possible cost. Improvements to the infrastructure and 
technological advancements continue, all to increase 
the Commission's efficiency and provide better cus- 
tomer service. 




Muhammad Ali-Salaam, Commissioner; Cathleen Douglas Stone, 
Commissioner; Vincent C. Mannering, Executive Director; and Dennis 
A. DiMarzio, Chairman, Board of Commissioners. 

The Commission is proud of what has been accom- 
plished in 20 years. But now is not the time to be 
complacent. The Commission is in the midst of 
implementing its strategic technology plan and by 
January 1, 1999 will be Year 2000 compliant and 
ready to serve the ratepayer of Boston in the new 
century. 



Sincerely, 







Vincent G. Mannering / 
Executive Director 




Ty/7 

July 18, 1977 

• BWSC is established with a three-member board of 
commissioners that oversee operation 
of the newly formed organization to 
take possession of the City's water 
and sewer systems. 




1978 

• BWSC obtains City's water and 
sewer system. 

• Leak Detection and Residential 
Metering Programs established. 



K? -%* *?*\ 



1981 

• Plan for the construction ' 
of the Boston Main 
Interceptor and East Side 
Interceptor initiated with a 
scheduled completion of 
1990. 






2-3 



Technological 
Advancements and 
Financial Integrity 



Technological Advancements 

The Commission is committed to taking advantage of 
technological advancements that are designed to 
improve overall efficiency of its operations and better 
serve its customers. Over the last 20 years, the 
Commission has progressed from hand- recording 
employee and customer information to the imple- 
mentation of state-of-the-art computer networking 
system implementations launched in preparation for 
the year 2000 and beyond. These included the 
Oracle* Relational Database Management System, 
Microsoft"' Windows NT, Geographical Information 
System (GIS) software, and the PeopleSoft' Human 
Resource Management System (HRMS). 

The Oracle Relational Database Management System 
provides the Commission with a robust database 
engine and supports data replication and warehous- 
ing. Microsoft Windows NT has become the 
Commission's standard personal computer operating 
system and is used to run Microsoft 8 Exchange for 
both internal and external electronic mail (e-mail) 
communications. New Geographical Information 
System (GIS) software was purchased from ESRI, 
Inc. to house digitized base maps of the City of 
Boston and digital "overlays" of water and sewer 
facilities. The Commission's functionally obsolete 
Human Resource Management System (HRMS) was 
replaced with a client/server-based PeopleSoft 
HRMS. The new HRMS takes full advantage of the 
Commission's advanced technical infrastructure and 
provides users with immediate access to all employee 
and applicant profiles. 



Financial Integrity 



In January of 1978, the Boston Water and Sewer 
Commission obtained the City of Boston's water and 
sewer systems with minimal income from customers 
and users. Shordy thereafter, a metering program was 
initiated. The Commission began collecting revenue 
to help fund many projects that needed to be under- 
taken, from the construction of the Boston Main 
Interceptor to the undertaking of various technologi- 
cal initiatives. The Commission has consistently main- 
tained an operating surplus since its inception, and in 
1997 operated with a $9,622,986.00 surplus. The 
operating surplus is applied direcdy to reducing the 
rate revenue requirement in the following year. In 
addition to maintaining an outstanding surplus, the 
Commission did not raise water and sewer rates 
for the fourth consecutive year (1993-1997). This 
outstanding money management resulted in the 
Commission receiving a credit upgrade from A to A+ 
by Standard and Poor's and from A to A 1 by 
Moody's Investor's Service. 

The Commission's Finance Division has been contin- 
ually awarded for its outstanding money management 
practices, including receiving the GFOA Certificate 
of Excellence in Financial Reporting for the fifth con- 
secutive year, and for the sixth consecutive year, the 
GFOA Distinguished Budget Presentation Award. 
For the first time ever, the Commission received an 
"Outstanding" rating in the GFOA Budget Award 
Program. 



1982 

• Comprehensive study 
launched of Boston's 
entire sewer system. 

• Construction begins on 
New East Side and New 
Boston Main Interceptors 
four-contract project. 



im 



5WWI 




i yi 

1984 

• Commission refinances 
its outstanding deh! with 
the issuance of the Sb°.7 
million Series ft General 
Revenue Bonds. 

• Contract 2 of New 
Boston Main Interceptor 
Project complete. 





1986 

• Issuance of $85,000,000 in general 
revenue bonds. 

• Debt Management Policy established. 



1987 

• Initiation of Valve Upgrading Program 
and Hydrant Improvement Program. 

■ Renewal and Replacement program 
for water system established to ensure 
that by the year 2010, all pipes in the 
system more than 100 years old 
would be rehabilitated. 




1988 

• New Meter Reading System 
introduced. 

• Complete restructurization of 
budgeting, financial 
planning and rate-setting 
process. 




' BWSC / 

4-5 



Operating Efficiency 



w. 



hen the Commission obtained the City of 
Boston's water and sewer infrastructures, it was faced 
with a neglected system. Water main breaks were 
frequent, and leaks plagued the system. In the first 
few years of the Commission's existence, enormous 
energy was expended on surveying the water and 
sewer systems, and creating many preventive mainte- 
nance programs that are still utilized to this day. 

The Commission's Operations Division was 
established to perform the day-to-day maintenance 
on the water and sewer systems as well as to answer 
customer requests for service and respond to emer- 
gencies. The Division was originally structured as two 
separate areas: water operations and sewer opera- 
tions. In the mid-nineties the division was reorga- 
nized and merged into one area: water and sewer 
operations. This merger has allowed for more effi- 
cient management practices and customer service. 

Preventive maintenance is a major component of the 
Operations Division activities. In 1997, a water main 
flushing program was implemented to improve the 
quality of water distributed to customers. In 1997, 
254.3 miles were flushed, 3,542 valves surveyed and 
2,051 hydrants operated. Due to the professionalism 
and experience of the Commission's flushing crews, 
customer inconvenience was negligible. 



During 1997, Commission crews began a cross- 
training program to broaden their working capacity. 
Thirty-eight employees were trained through the 



1997 OPERATIONS DIVISION ACHIEVEMENTS: 



• Downsized 243 meters, allowing for an 
additional 15,806.97 cubic feet of consumption 
to be accounted for (a $215,890 increase in 
revenue) and a $34,405 reduction was realized 
in capital cost savings 

• 4,356 meters were replaced 

• Eliminated 180 streamlined pipes 

■ Removed 437 connecting pipes and relocated 37 
meters from outside pits 

• Installed 126 new Mills and repaired 629 



Commission's Cross-Training Program, 97 employees 
were Competent Person Trained and 59 employees 
were trained on Confined Space Entry. 

A Radcom alarm system that monitors the MWRA's 
master meters was implemented. The system also 
provides graphics and chart tracking for 
broken/repaired ARBs and AMRs, main break 
chronologies and meter downsizing. 





1989 

• Leak Detection Program 
saves Commission 10.1 
million gallons of water 
per day. 



1990 

• Unaccounted-for 
Water Task Force 
developed. 
Unaccounted-for 
water now at 27°/o 

• Meter Downsizing 
Program initiated. 



Wu 1 



TW 




1991 

• Collection rate for 
accounts receivable 
increased from 94% 
to "8". 

• In-house automated 
financial management 
system implemented. 






he extensive efforts 
men and women 



; Commission a 
erable amount 
money annually, 
a saving that is passed 
onto ratepayers in the 
form of flat rates 
and more efficient 
water service. 



♦ " 



\ 



1992 

• 1992 Distinguished Budget 
Presentation Award; 1992 Best 
Overall Public Water System 
Award; 1992 New England 
Environmental Award. 




I Zr SS<J 



■ Installed Automatic Meter Reading devices 
for over 1,500 of BWSC's largest user 
accounts. .^^B 

■ Executed a refunding bond W|P<I\ 
issue totaling approx. $101 J; '.\*ffc- 
million. 





1994 

• New St. James 
Avenue Interceptor 
Project initiated. 

• Downspout 
Disconnection 
Program launched to 
reduce infiltration 
and inflow. 



1997 BVVSC 



Engineering Minds 



T„ 



he Engineering Division has undertaken several 
dramatic projects through the years, from the New 
Boston Main Drainage and East Side Interceptor 
projects in the early and mid-eighties to the New St. 
James Avenue Interceptor Project in the late nineties. 
Achievements in 1997 include the completion of the 
Port Norfolk drainage and water improvements, 
AUston-Brighton Sewer System Evaluation and the 
Stony Brook Sewer System Study. AutoCAD 13 was 
successfully implemented to replace manual drafting 
and mapping and update the layout of the city's 
water and sewer infrastructure. In addition, the 
division's Geographical Information System (GIS) 
was expanded. A blockage in the Stony Brook Valley 
Sewer was located and removed, eliminating 500,000 
gpd of dry weather overflow into the Charles River. 
A database for tracking sewer use violations was 
initiated and developed as well as a computerized 
system to monitor and track the Commission's exca- 
vation permit process. The New St. James Avenue 
Interceptor Project received the ACEC's Grand 
Award honor for its state of the art use of new 
technologies, including microtunneling, cured in- 
place lining, shotcrete lining and pipe bursting. 

Leak detection has proved to be a significant factor 
in money-saving and system upkeep. When the 
Commission was formed, leaks proved to be such a 
problem both financially and structurally that a Leak 
Detection Program was initiated in 1978. By 1987, 
38% of the total system (447 miles) was surveyed for 



leaks annually. In 1988, 95% of the system was sur- 
veyed and in 1989 the Leak Detection Program saved 
the Commission 10.1 mgd. In 1997, 319 leaks were 
located for an additional savings of 3.1 mgd. 



UNACCOUNTED-FOR WATER FROM 1977 TO 1997 




The programs developed by the Commission to combat the 
unaccounted-for water problem have reduced the levels by over 
50 mad since 1977. 



The extensive efforts by the men and women work- 
ing in the Leak Detection Program save the 
Commission a considerable amount of money 
annually, a saving that is passed onto ratepayers in the 
form of flat rates and more efficient water service. 



;yyj 

1995 

• Fifty-one illegal connections 
correcled, removing 9,100 
mgd untreated sewage to 
receiving waters. 

• Second consecutive year with 
no rate increase. 




™ 



1996 

• New St. James Avenue 
Interceptor Project finished 
two years ahead of schedule 
and under budget 

• St. James Avenue Interceptor 
Project named "Project of the 
Year" by Trenchless Teclmoloqv 
Magazine; 1996 Outstanding Acr 
Boston Society of Civil Engineers. 




ement \nard trom 



\yy 



a 



m 



1997 

• BVVSC celebrates its 
20-year anniversary. 

• Direct expenses at their 
lowest level since 1989. 

• Fourth consecutive year with no rate increase 

• BWSC receives highest bond rating ever. 

• Receives CFOA anard for outstanding financial 
management. 



In Memoriam 



q 



"n September 1, 1997, 
the Boston Water and Sewer 
Commission lost of one of its 
legacies, John P. "Jake" 
Sullivan, former Director of 
Operations. Jake worked for 
the Boston Transit Department 
before joining the City of 
Boston Public Works Water 
Division on April 22, 1948. He 
was a registered professional 
engineer and a certified opera- 
tor of drinking water systems in the Commonwealth. 
During his years in the Water Division, Jake worked 
his way up to become the Division Engineer in 1970, 
responsible for overseeing the entire operation of the 
Water Division. Jake worked on many major projects 
during his years at the Water Division, including 
overseeing the rebuilding of the water systems at 
Government Center and the redevelopment of the 
South End and Charlestown. He was also instrumen- 
tal in introducing cleaning and cement refining of 
water pipe as a cost-effective rehabilitation in Boston, 
one that is still used to this day. He implemented the 
recommendations of the 1986 Water Distribution 
Study, including the construction of two major 36- 
inch and 48-inch transmission lines in Charlestown 
and Roxbury. 

When the Commission was formed in 1977, Jake was 
appointed to the position of Director of Operations 
for Water and Sewer Services and held the position 
until his retirement on June 30, 1988. 




In addition to his many 
accomplishments in Boston, 
Jake was also an honorary 
member of the Massachusetts 
Water Works Association and 
a life member of the New 
England Water Works 
Association, American Public 
Works Association and the 
Boston Society of Civil 
Engineers. He did not stand 
alone in his tenure at the 
Commission and Public Works Department. Jake was 
the middle generation of Sullivans to work for 
Boston. His father, Daniel M. Sullivan, began with 
the Water Division of the City's Public Works 
Department in August of 1911 and was Division 
Engineer for many years. Jake's son, John P. Sullivan, 
Jr., began with the Water Division in 1972 and is cur- 
rently the Chief Engineer for the Commission and an 
acclaimed expert on infrastructure rehabilitation. In 
addition to John Jr., Jake's other sons, Daniel and 
Richard, also hold management positions at the 
Commission in the Operations Division. 

Jake is fondly remembered and sorely missed. 



mmmmammmmm 



Independent 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 3 1 , 1997 and 1996, 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 stan- 
dards 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 fairly, in all material respects, the 
financial position of the Commission at December 3 1, 1997 and 1996 and the results of its opera- 
tions 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 accompanying 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. 

During 1997 the Commission adopted the provisions of Governmental Accounting Standards Board 
Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, and 
Statement No. 32 , Accounting and financial Reporting for Internal Revenue Code Section 457 
Deferred Compensation Plans. 



1997 BWSC ANNUAL REPORT 



April 3, 1998 



Balance Sheets 

December 31, 1997 and 1996 



ASSETS: 

Current assets: 

Cash and cash equivalents (note 8) 
Accounts receivable, net: 

Customers, less allowances of $6,472,190 in 1997 

and $6,401,080 in 1996 (note 1) 
Unbilled revenues, less allowances of $1,702,361 in 
1997 and $1,702,361 in 1996 (note 1) 
Construction grants receivable 
Prepaid expenses 
Deferred compensation plan assets (note 13) 



$ 4,050,618 


$ 4,656,657 


20,767,222 


23,891,596 


8,862,033 


8,279,709 


1,337,856 


1,368,958 


269,934 


273,603 



3,416,353 



Total current assets 



35,287,663 



41,886,876 



Restricted investments (notes 4 and 8) 
Property, plant and equipment, net (note 3) 
Deferred charges (note 2) 
Bond issue costs, net 



275,956,366 

433,277,165 

31,025,356 

2,672,324 



248,610,946 

421,049,968 

33,035,277 

2,966,152 



Total assets 



$778,218,874 



$747,549,219 



LIABILITIES AND COMMISSION EQUITY: 

Current liabilities: 

Payable from current assets: 
Accounts payable 
Other accrued liabilities 
Current portion of revenue bonds (note 4) 



5,761,067 
8,377,396 
7,115,000 



9,764,210 
7,404,911 
6,750,000 



Payable from trusteed assets: 

Current portion of City of Boston bonds (note 4) 



21,253,463 



50,000 



23,919,121 



50,000 



Total current liabilities 



21,303,463 



23,969,121 



Long-term debt (note 4) 

Long-term notes payable (note 4) 

Deferred compensation plan liability (note 13) 

Other long-term liabilities 

Deferred credits and reserves (note 2) 



See accompanying notes to financial statements. 



265,080,570 
34,267,440 

64,731,187 
266,185,706 



271,778,050 

20,531,323 

3,416,353 

69,316,779 

236,555,871 



Total liabilities 


651,568,366 


625,567,497 


Commission equity: 
Contributed capital 


126,650,508 


121,981,722 


Commitments and contingencies (notes 9, 10, 11 and 12) 
Total liabilities and Commission equity 


$778,218,874 


$747,549,219 



7 P77. 






Statements of Operations 

Years Ended December 31, 1997 and 1996 



J997BWSC ANNUAL REPORT 



OPERATING REVENUES: 

Water and sewer usage $183,255,895 $185,883,893 

Fire P^ 2,396,537 2,327,205 

Qther 6,617,579 3,648,642 



Total operating revenues 192,270,011 191,859,740 

OPERATING EXPENSES: 

Operations 43,654,591 47,968,088 

Maintenance 5,445,498 4,096,378 

MWRA assessment (note 5) 103,242,409 101,193,571 

Depreciation and amor tization 13,904,199 12 951 671 

Total operating expenses 166,246,697 166,209,708 



Excess operating revenues 26,023,314 25,650,032 

NONOPERATING REVENUE (EXPENSE): 

Bond redemption costs (note 4) (2 469 400) 

Interest income 18,740,157 20^006^612 

Interest expense - (17,323,597) (20,966,091) 

Total nonoperating revenue (expense) 1,416,560 (3,428 879) 

Excess revenues before depreciation add-back 

and transfer requirements 27,439,874 22 221 153 

Add: Depreciation on fixed assets acquired by grants 2,189,961 2,091 148 

Excess revenue before transfer requirements 29,629,835 24,312,301 
Excess revenues used to fund reserves and other 

deferrals (note 2) (29,376,952) (23,700,800) 
Accumulated revenues used to offset future rates — 

beginning of year 9,370,103 8,758,602 

Accumulated revenues used to offset future rates — 

end of year $ 9,622,986 $ 9,370,103 

See accompanying notes to financial statements. 



STATEMENTS OF COMMISSION EQUITY 

Years Ended December 31, 1997 and 1996 



CONTRIBUTED 
CAPITAL 

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

Contributions in aid of construction 3,549,567 

Depreciation of related property (2,091,148) 

Balance, December 31, 1996 121,981,722 

Contributions in aid of construction 6,858,747 

Depreciation of related property (2,189,961) 

Balance, December 31, 1997 $126,650,508 

See accompanying notes to financial statements. 






Statements of Cash Flows 

Years Ended December 31, 1997 and 1996 



1997 BU'SC ANNUAL REPORT 



CASH FLOWS FROM 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 and reserves 

Other long-term liabilities 

Net cash provided by operating activities 



Net cash used for capital and related 
financing activities 



Cash and cash equivalents at end of year 



See accompanying notes to financial statements. 



$ 26,023,314 


$ 25,650,032 


(29,629,835) 


(24,312,301) 


13,904,199 


12,951,671 


3,124,374 


650,274 


(582,324) 


273,811 


31,102 


(17,439) 


3,669 


114,445 


(4,003,143) 


(806,746) 


972,485 


(551,739) 


29,629,835 


24,312,301 


(4,585,592) 


616,403 



34,888,084 



CASH FLOWS FROM INVESTING ACTIVITIES: 

Sale (purchase) of investments, net (27,345,420) 

Interest income 18 740 157 



Net cash (used) provided by investing activities (8,605,263) 

CASH FLOWS FROM CAPITAL AND 
RELATED FINANCING ACTIVITIES: 

Additions to property, plant and equipment (23,827,647) 

Proceeds from notes payable 13,736,117 

Payment on bonds, including current maturities (6,332,480) 

Bond redemption costs 

Bond issue costs 

Contributions in aid of construction 6,858,747 

Payment of bond interest (17,323,597) 



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



(26,888,860) 



(606,039) 
4,656,657 



38,880,712 



83,349,906 
20,006,612 



103,356,518 



(36,726,695) 
2,428,253 

(90,560,357) 
(2,469,400) 
1,716,600 
3,549,567 

(20,966,091) 



(143,028,123) 



(790,893) 
5,447,550 



$ 4,050,618 



S 4,656,657 



Notes to Financial Statements 



December 31, 1997 and 1996 



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 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, 1997 is provided below: 



AS PRESENTED IN THE STATEMENTS OF OPERATIONS: 

Operating revenues/expenses 
Other revenues/expenses 



$192,270,011 
18,740,157 



$166,246,697 
17,323,597 



Total 

RECLASSIFICATIONS AND DEFERRALS: 

Contributions to reserves 

Provision for working capital 

Provision for capitalized interest 

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 



211,010,168 



570,428 

154,593 

(9,458,991) 



(2,759,462) 
9,370,103 



183,570,294 
18,970,811 



(9,458,991) 
(5,061,747) 
(1,149,643) 

12,235,587 

157,542 




As presented in the Supplemental Schedule 



$208,886,839 



$199,263,853 



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 $9,622,986 and $9,370,103 for the years ended 
December 31, 1997 and 1996, 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 hillings Accordingly, the 1997 and 1996 total customer bills outstanding of $39,259,192 and $42,180,396, 
respectively, have been reduced by provisions for billing adjustments and sewer abatements of $9,615,824 and $2,403,956, respec- 
tively, in 1997 and $9,510,176 and $2,377,544, respectively, in 1996. These net billing amounts are further reduced by an allowance 
for uncollectible accounts of $6,472,190 and $6,401,080 in 1997 and 1996, to arrive at net accounts receivable. 

(b) Jnve^tfnents 

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 
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 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 1997 or 1996 
because the difference between interest expense and interest income on unexpended proceeds was not material. 



/9 77~. 19^ 1 



1997 BVVSC ANNUAL REPORT 



Notes to Financial Statements 



December 31, 1997 and 1996 



(d) Depreciation 

Estimated useful lives used in computing depreciation are as follows: 



WATER: 

. Works 
Meters 
Hydrants 



100 
10 
40 



SEWERAGE: 

Works 



Pumping station 35 

OTHER 4 to 14 

(e) Contributed Capital 

Contributions received from governmental agencies, individuals and the City 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 statements 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 (GASB) Statement No. 20, Accounting and Financial Reporting for 
Proprietary Activities, the Commission has elected to apply all Financial Accounting Standards Board (FASB) Statements and 
Interpretations issued on or before November 30, 1989, except those that conflict with or contradict GASB pronouncements. 

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 Statements of 
Operations and reflected in the balance sheets as deferred charges or deferred credits. The revenues and expenses that have been 
removed from the Statements 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 Statements of Operations. The components of these amounts are as follows: 



1997 



1996 



Contributions to reserves 

Provision for working capital 

Provision for capitalized interest 

Principal payments on long-term debt 

Interest paid from escrow funds 

Capital expenditures 

Depreciation and amortization 

Interest income on project and escrow funds 

Other 



$18,970,811 

(570,428) 

(154,593) 

8,503,196 

(1,149,643) 

12,235,587 

(11,714,237) 

2,759,462 

496,797 



$17,171,033 
(570,428) 

9,045,230 
(5,939,537) 
11,500,320 

(10,860,523) 
5,43 1.559 
(2,076,854) 



Total 



$29,376,952 



$23,700,800 



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



Accrued pension expense 
Debt extinguishment expense 



$14,631,411 
16,393,945 



$14,970,666 
18.064,611 



Total deferred charges 



$31,025,356 



$33,035,277 



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



Debt service 

Capital improvements 

Working capital 



DECEMBER 31, 


INCREASE 


DECEMBER 51 


1996 


(DECREASE) 


1997 


$ 77,424,009 


$18,970,811 


S 96,394,820 


119,570,765 


10,976,569 


130.547,334 


27,950,994 


(570,428) 


27380.566 


2,240,000 


— 


2,240,000 



Self-insurance 


2,240,000 


— 


2,240,000 


Subtotal 
Reduction of future rates 


227,185,768 
9,370,103 


29,376,952 
252,883 


256,562,720 
9,622,986 


Total deferred credits and reserves 


$236,555,871 


$29,M 


$266,185,706 



Notes to Financial Statements 



December 31, 1997 and 1996 



5. PROPERTY, PLANT AND EQUIPMENT 

The cost of water and sewerage property, plant and equipment in service and related accumulated depreciation at December 3 1, 
1997 and 1996 are as follows: 



1997 



1996 



WATER: 

Works 

Meters and hydrants 



$151,503,838 
19,388,133 



$145,474,957 
18,299,667 



Total water 


170,891,971 


163,774,624 


SEWERAGE: 

Works 
Pumping station 


243,396,937 
6,818,570 


212,599,900 
6,818,570 


Total sewerage 


250,215,507 


219,418,470 


OTHER 

Total property, plant and equipment 
Less accumulated depreciation 


68,140,883 

489,248,361 

95,498,323 


62,596,938 

445,790,032 

83,995,823 


Net property, plant and equipment 
Construction in progress 


393,750,038 
39,527,127 


361,794,209 
59,255,759 


Total 


$433,277,165 


$421,049,968 



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 direcdy to the City in accordance with the 
original 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 , 1997 and 1996 follows (amounts in thousands): 



1996 



City Bonds, bearing interest at a rate of 6.9% with 
maturity dates through December 1999 
Less current installments 



$ 100 
50 



$ 150 
50 



Total City Bonds, net of current installments 



$ 50 



Less current installments 



48,075 

276,350 
7,115 



100 



SENIOR DEBT: 

1986 Series A, bearing interest at a rate of 6.0%, with a maturity date of November 1, 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 6.0% to 6.5%, with maturity 
dates ranging from November 1, 1998 to 2021 

1992 Series A, bearing interest at rates ranging from 5.1% to 6.1%, with maturity 
dates ranging from November 1, 1998 to 2013 

1993 Series A, bearing interest at rates ranging from 4.0% to 5.4%, with maturity 
dates ranging from November 1, 1998 to 2019 

1994 Series A, bearing a variable interest rate (3.9% and 4.0% at December 31, 1997 
and 1996, respectively), with maturity dates ranging from November 1, 1998 to 2024 

SUBORDINATED DEBT: 

1988 Series A, bearing interest at rates ranging from 6.0% to 7.4%, with maturity dates 
ranging from November 1, 1998 to 2008 



$ 13,165 


$ 13,165 


585 


585 


14,890 


15,710 


63,755 


66,200 


97,480 


97,545 


38,400 


39.000 



50,895 

283,100 
6,750 



Total long-term revenue bonds 
Less unamortized issue discount 



269,235 
4,204 



276,350 
4,672 



Net long-term revenue bonds 



$265,031 



$271,678 



'V77 . V99' 






1997 BWSC ANNUAL REPORT 



Notes to Financial Statements 16 ' 17 

December 31, 1997 and 1996 



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 



1998 
1999 
2000 
2001 
2002 
Thereafter 


$ 50 
50 


$ 7 
3 


$ 7,115 

8,815 

9,435 

9,955 

10,535 

230,495 


$ 16,187 
15,737 
15,192 
14,611 
13,993 
125,766 


$ 7,165 
8,865 
9,435 
9,955 
10,535 

230,495 


$ 16,194 
15,740 
15,192 
14,611 
13,993 
125,766 


Total 


$100 


$10 


$276,350 


$201,486 


$276,450 


$201,496 



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 provided 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 on the 1985 Series A Bonds and the interest payments on the 1986 Bonds as they come due. 
The outstanding portion of this issue, except for the 2015 Term Bonds, was extinguished through early redemption on November 1, 
1996 at no gain or loss. A call premium of $752,800 was paid and a charge of $1,154,545 was recognized in the Statement of 
Operations for unamortized bond issue costs. 

In December 1988, the Commission issued 1988 Series A Bonds to provide for the defeasance of a portion of the 1984 Series A 
Bonds (subsequendy 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 pan 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, 1998 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 pay- 
ments on $37,640,000 of the same 1986 Series A 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 
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 were not considered defeased. The outstanding debt of 
$37,640,000 was paid from the 1992 cross-over funds on November 1, 1996. 

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 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 
undertaken 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, 1998 through 2024, in the event that the 
Commission is unable to make such payments. 

In the aggregate $157,655,000 remains outstanding at December 31, 1997 on the bond issues that were defeased "in-substance." 



Notes to Financial Statements 



December 31, 1997 and 1996 



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 pro- 
vides 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 1998 at a price of 102% 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 com- 
ponents of the trusteed and nontrusteed investments at December 31, 1997 and 1996 are as follows: 



1997 



1996 



TRUSTEED: 

U.S. Treasury notes 
Other government obligations 
Money market and cash investments 
Open-ended mutual funds 
Commercial paper 



$ 82,475,563 

38,724,170 

9,445,701 

8,642,010 

74,160,038 



84,618,681 
24,164,639 
36,658,744 
40,102,840 
9,545,073 



213,447,482 



195,089,977 



NONTRUSTEED: 

U.S. Treasury notes 

Other government obligations 

Money market and cash investments 

Open-ended mutual funds 

Commercial paper 

Repurchase agreements 



8,224,593 
2,434,866 
16,469,137 
13,676,278 
3,093,300 
18,610,710 



9,074,296 
2,773,736 
4,691,726 
8,479,095 
6,958,882 
21,543,234 



62,508,884 



53,520,969 



$275,956,366 



$248,610,946 



Long-term Notes Payable: 

During 1997 and 1996, the Commission executed loan agreements 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, 1997, 
an aggregate amount of $31,545,790 was received by the Commission. The Commission is eligible to receive the remaining $788,910 
once the projects are completed. For purposes of offsetting principal and interest payments, an amount aggregating approximately 
$23,689,000 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 
agreements with MWPAT is $28,580,626 at December 31, 1997. The scheduled loan payments for all MWPAT obligations and 
related subsidies 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 


1998 


$ 1,197 


$ 1,607 


$ 2,804 


$ 809 


$ 867 


$ 1,676 


$ 796 


$ 332 


$ 1,128 


1999 


1,232 


1,553 


2,785 


777 


867 


1,644 


819 


322 


1,141 


2000 


1,277 


1,497 


2,774 


743 


867 


1,610 


852 


312 


1,164 


2001 


1,319 


1,436 


2,755 


708 


867 


1,575 


879 


301 


1,180 


2002 


1,375 


1,371 


2,746 


672 


867 


1,539 


920 


287 


1,207 


Thereafter 


24,167 


9,843 


34,010 


4,751 


10,894 


15,645 


16,366 


1,999 


18,365 


Total 


, $30,567 


$17,307 


$47,874 


$8,460 


$15,229 


$23,689 


$20,632 


$3,553 


$24,185 






The Commission entered into various interest-free loan agreements with the Massachusetts Water Resources Authority (the 
"Authority") during 1997 and-il996. Under these agreements, the Commission received $528,000 and $1,122,425 in 1997 and 1996, 
respectively, to be repaid in five equal annual installments as part of the Authority's Infiltration/Inflow Local Financial Assistance 
program. The long-term portion of these loans at December 31, 1997 is $2,237,703. In addition, the Commission received 
$4,311,377 in interest-free loans from the Authority as part of the Authority's Local Water Infrastructure Rehabilitation Program. 
The long-term portion of these loans at December 31, 1997 is $3,449,111. These programs are designed to assist service area 
communities with sewer' system rehabilitation. 



r ^77 . 1'9** 



1997 BVVSC ANNUAL REPORT 



Notes to Financial Statements 

December 31, 1997 and 1996 



5. MASSACHUSETTS WATER RESOURCES AUTHORITY 

The Massachusetts Water Resources 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. 
Amounts included in the Statements of Operation for assessments by the Authority for 1997 and 1996 are as follows: 



Assessments allocated on: 

Water usage $29,523,486 $28,182,821 

Wastewater usage 73,718,923 73,010,750 

Total $103,242,409 $101,193,571 

In 1997 and 1996, over 77% and 78%, respectively, of water provided 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 77% in 1997 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. 

6. TRANSACTIONS WITH THE CITY OF BOSTON 

The Commission's ongoing program to meter City facilities has resulted in billings to nine City departments based on actual con- 
sumption of approximately $3,364,000 and $3,738,000 in 1997 and 1996, respectively. 

The City provides services to the Commission, including paving and facilities rental. Operating costs billed to the Commission by 
the City were approximately $1,275,200 and $1,020,600 during 1997 and 1996, respectively. Capital costs billed by the City were 
approximately $2,627,300 and $3,663,900 during 1997 and 1996, 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. As of December 31, 1997, receivables totaling approximately $3.5 million of billings had been 
included on property tax bills. During 1997, the city collected and remitted to the Commission $960,000. 

At the end of 1995, the Commission implemented its own tax lien program. Under this program, accounts which have unpaid 
balances over two years old are transferred into the tax lien program for collection. As of December 31, 1997, approximately 
$3 million of this amount remains outstanding. 

7. RETIREMENT BENEFITS 

During 1997, the Commission adopted GASB Statement No. 27, Accounting for Pensions by State and Local Governmental 
Employees, which modified the disclosures required for the retirement plan. 

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" or "System"), 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 setded 
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 pan 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, 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 multiemployer public employee retirement system established under Chapter 32 of the MGL and is a 
member of the Massachusetts Contributory Retirement System. The System provides retirement, disability and death benefits to plan 
members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan, and 
grant cost-of-living increases to the State legislature. The System issues a publicly available financial report which can be obtained 
through the Commonwealth of Massachusetts, Public Employee Retirement Administration ("PERA"). One Ashburton Place, 
Boston, Massachusetts 02108. 



Notes to Financial Statements 

December 31, 1997 and 1996 



Funding Policy 

Plan members are required to contribute to the SBRS at rates ranging from 5 % to 1 1 % of annual covered compensation. The 
Commission is required to pay into the SBRS its share of the remaining systemwide actuarially determined contribution plus admin- 
istration costs which are apportioned among the employers based on active covered payroll. The Commonwealth of Massachusetts 
reimburses the SBRS for a portion of benefit payments for cost-of-living increases. The contributions of plan members and the 
Commission are governed by Chapter 32 of the MGL. The Commission's contributions to the System for the years ending December 
31, 1997, 1996 and 1995 were approximately $1,033,000, $787,000 and $780,000, respectively, which equaled its required contribu- 
tion each year. Total employee contributions, based on actuarially determined amounts were approximately $1,578,000, $1,473,000 
and $1,449,000 or 7.7%, 7.5% and 7.4% of covered payroll in 1997, 1996 and 1995, respectively. 

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. State Street Bank and Trust Company is the custodian of the portfolio, which is managed by independent 
investment advisors. 

THE COMMISSION'S TRUST FUND 

The Trust Fund pays the SBRS plan annually an amount equal to the amount SBRS paid on behalf of the Commission's employees. 
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 Com- 
mission'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. 

(a) Valuation of Investments 

Trust Fund assets at December 31, 1997 and 1996 are as follows: 



Assets (at fair market value): 

Common stock $28,341,071 $22,761,060 

International stock 2,610,975 2,271,713 

Mutual funds 191,419 201,700 

Fixed income 17,190,657 15,068,892 

Total $48,334,122 $40,303,365 

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

The most recent actuarial valuation of the Commission was prepared by the Segal Company as of January 1, 1997. As of that date, 
the total covered employee payroll was approximately $22,111,072. 

The unfunded actuarial liability ("UAL") as of January 1, 1997 is as follows: 




Active participants $ 25,809,167 

Retired members and beneficiaries 7,841,245 

Total actuarial liability 33,650,412 

Less actuarially determined net assets (34,333,364) 

Overfunded actuarial liability $ (682,952) 

The significant assumptions used in the calculation of the UAL as of January 1, 1997 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, 1997 actuarial valuation was based on 151 retired and inactive employees and 530 active employees. These assumptions 
are the same as those used to determine actuarial contribution requirements. 



79 7T~. 199' 






1997 BWSC ANNUAL REPORT 



Notes to Financial Statements 



20-21 



December 31, 1997 and 1996 



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-l, P-l; 
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, 1997 follows: 





1 


CATEGORY 

2 


3 


BANK 
BALANCE 


CARRYING 
AMOUNT 


Cash 

Bank money market deposits 


$364,781 


— 


$ 4,841,688 
26,705,272 


$ 5,206,469 
26,705,272 


$ 4,050,618 
25,914,838 


Total 


$364,781 


- 


$31,546,960 


$31,911,741 


$29,965,456 



Deposits in transit and outstanding checks account for the majority of the 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 and 
unregistered investments held by the counterparty's trust department or agent in the Commission's name. Category 3 includes unin- 
sured or unregistered investments held by the counterparty, its trust department or agent but not in the Commission's name: 





5ns 
obligations 


1 


CATEGORY 

2 


3 


CARRYING 
AMOUNT 


MARKET 
VALUE 


CATEGORIZED: 

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


$108,201,840 
23,657,352 


$ 

18,610,710 
77,253,338 


— 


$108,201,840 
23,657,352 
18,610,710 
77,253,338 


$108,099,796 
23,522,598 
18,610,710 
77,096,916 






131,859,192 


95,864,048 


— 


227,723,240 


227,330,020 


NOT CATEGORIZED: 

Open-end mutual funds 










22,318,288 


22,318,288 


Total 




$131,859,192 


$95,864,048 


— 


$250,041,528 


$249,648,308 



9. LEASE COMMITMENTS 

On July 2, 1993, the Commission entered into a 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 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. 



Notes to Financial Statements 



December 31, 1997 and 1996 



Minimum lease commitments under all operating leases with terms in excess of one year at December 31, 1997 are as follows: 

OFFICE OTHER 

1998 
1999 
2000 
2001 
2002 
Thereafter 



$ 1,325,717 


$ 764,252 


1,325,717 


38,074 


1,325,717 


23,908 


1,325,717 


23,908 


1,325,717 


23,908 


20,764,517 


406,445 



Total 



$27,393,102 



$1,280,495 



Rent expense under operating leases amounted to $1,828,796 and $1,848,243 in 1997 and 1996, respectively. 

10. COMMITMENTS 

A major capital improvement program is currendy 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 $38 million 
as of December 31, 1997. 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 $107.3 million for 1998 and 1999. Of this amount, 
approximately $85.9 million represents extension and improvement projects and $21.4 million represents renewal and replacement 
projects. The extension and improvement projects are expected to be 26% funded by federal and state grants 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. 

Included in the above commitments is funding for the design and construction of a facility to consolidate Commission operations at 
one location. A purchase and sales agreement was executed on January 22, 1998. The date of closing was April 2, 1998 at a total pur- 
chase price of $11 million. The total three-year spending, for the new facility, including the cost of purchase is $47.1 million, of 
which $25.1 million is anticipated to be spent in 1998 with $20 million and $2 million in years 1999 and 2000, respectively. 

Pursuant to Chapter 152 of the Acts of 1997, the Massachusetts General Court authorized the taking of real property within certain 
boundaries in South Boston for the purpose of constructing a new convention center in the City of Boston. A four-acre parcel 
purchased by the Commission in 1993 lies within those boundaries. Chapter 152 provides that land held by public agencies, includ- 
ing the Commission, is deemed to be held for governmental purposes and therefore will be taken without consideration to the 
applicable agency. The Commission purchased the parcel for $6,000,000, and made improvements therein, costing approximately 
$2,000,000. As part of legislative negotiations, the taking agency represented that the Commission will receive compensation in some 
form over time from the end user for the acquisition and use of the parcel. In addition, the Commission will not have to make sewer 
and drainage improvements that had been planned for the convention center area because these will be made by the developer as 
part of the development of the site. 

11. RISK MANAGEMENT AND OTHER INSURANCE 

The Commission carries self-insured retention limits for claims filed under workers' compensation and general liability and com- 
pletely self-insures for all unemployment benefits. The workers' compensation self-insured retention limits are $300,000 per claim, 
$1,868,000 aggregate and is supplemented with $5 million in excess coverage purchased through an outside carrier. For general lia- 
bility, the Commission's self-insured limits are $1 million per occurrence, $2.5 million aggregate and is 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 



v. 



Premium Based 

Combined single limit of $1 million 

Aggregate limit of $20,227,000 

Coverage of $3 million; $100,000 self-insurance retention 

$2 million coverage 

Employee dishonesty coverage of $5 million 



7 $77~. 1^ 9 ' 






Notes to Financial Statements 

December 31, 1997 and 1996 



1997 BWSC ANNUAL REPORT 



22-23 



The Commission participates in the City's health benefits plans for which the City assesses 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. 

Liabilities for self-insured claims are reported if it is probable that a loss has been incurred and the amount can be reasonably esti- 
mated. The Commission has established a liability based on historical trends of previous years and attorney's and independent insur- 
ance reserve appraiser's estimates of pending matters and lawsuits in which the Commission is involved. Unemployment claims paid 
during 1997 were immaterial. 

Changes for the years ended December 31, 1997 and 1996 are as follows: 



1997 



1996 



Beginning balance of reserves 

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

Workers' compensation 

General liability 
Incurred claims 

Ending balance of reserves 



$4,165,390 

(631,508) 
(396,487) 
1,159,412 



$4,508,332 

(497,064) 
(534,474) 
688,596 



$4,296,807 



$4,165,390 



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 
agencies. 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 may be 
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, 1997, the overall clean- 
up costs are estimated to be approximately $450 million. However, the extent of the Commission's liability for these costs cannot be 
determined. 

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 Prudential Trust 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, retire- 
ment, 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 held in trust for the 
exclusive benefit of participants and their beneficiaries. The assets and liabilities of the plan have, therefore, been removed from the 
balance sheet as of December 31, 1997. 

14. SUBSEQUENT EVENT 

In April 1998, the Commission expects to issue bonds. The proceeds are expected to be used to refund outstanding principal 
amounts. 



Supplemental Schedule of Revenues 
and Expenses — Rate Basis 



Years Ended Dcember 31, 1997 and 1996 



REVENUES: 

Water revenue 
Sewer revenue 



Less: 

Adjustments 
Discounts 
Bad debt 



Total 



Net billed charges 

Prior year surplus 

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



Total] 



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 



Total direct operating expenses 



NONOPERATING EXPENSES: 

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



E 66,673,734 
116,582,161 



183,255,895 

7,279,381 

741,903 

1,437,706 



9,458,990 



173,796,905 
9,370,103 

2,939,296 
13,041,399 
2,396,537 
7,342,599 



208,886,839 



40,535,902 



i 67,703,536 
118,180,357 



185,883,893 

11,605,519 

764,433 

3,221,666 



15,591,618 



170,292,275 
8,758,602 

2,923,808 
11,651,244 
2,327,205 

4,219,071 



200,172,205 



22,230,570 


21,532,653 


799,512 


882,356 


3,482,062 


3,079,655 


1,904,423 


1,633,555 


5,445,498 


4,096,378 


519,179 


452,513 


1,579,685 


1,210,055 


1,828,796 


1,848,243 


861,431 


704,378 


358,501 


374,750 


480,560 


469,474 


383,524 


307,547 


662,161 


519,103 



37,110,660 



103,242,409 


101,193,571 


11,573,426 


10,981,216 


8,503,196 


9,045,230 


16,173,954 


15,026,552 


18,970,811 


17,171,033 


264,155 


273,144 


— 


696 



Total nonoperating expenses 


158,727,951 


153,691,442 


Total current expenses 


199,263,853 


190,802,102 


Current year rate surplus 


$ 9,622,986 


$ 9,370,103 



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. 



/9 77 . -\°>°^ 



■■■■ 





This report was produced by the Executive Director's Office of the Boston Water and Sewer ( 

Design and Print Production: Champagne/Lafayette Cornmunicatioi 
Photography: Harry R. rtappeny 

\9 Parts of ibis annual report were printed on ret 




Boston Water and Sewer Commission 



425 Summer Street 

Boston, MA 02210 

617-330-9400