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Full text of "Annual report"

BOSTON PUBLIC LIBRARY 



3 9999 06588 171 4 

GOVDOC 





N WATER AND SEWER COMMISSION 



1998 ANNUAL REPORT 






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building Boston front tite gro uiBBra owii 



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1998 ANNUAL REPORT 



A city is only 

as strong as tlie 

infrastructure 



BUILDING THE CITY FROM THE GROUND DOWN is what the Boston Water and 
Sewer Commission has been doing since its inception in 1977. By supporting an aggressive 
Capital Improvement Program (CIP), the Conunission has significantly reduced I/I 
(infiltration and inflow) into its sewers, repaired, replaced and rehned leaking pipes in 
the water system, and initiated major sewer separation projects, which have drastically 
reduced harmful pollution from entering Boston Harbor. The results have been dramatic. 
Boston leads all the Massachusetts Water Resources Authority (MWRA) communities in 
its reduction of I/I, and as a major American city, has experienced the fewest water main 
breaks per rrule. In addition, its contribution to the renaissance of Boston Harbor has 
opened great development opportunities along Boston's waterfront. The Commission is 
proud to be a partner in helping to protect and improve the infrastructure, which will 
allow Boston to grow into the new millennium. 



foundation 



supporting it. 



Mindfvd of Mayor Thomas M. Menino's directive to provide the citizens of Boston the 
highest quahty water and sewer services for the lowest possible price, the 1998 Direct 
Expense Budget was once again level-funded; and for the unprecedented, fifth consecutive 
year, there was no increase in Boston's water and sewer rates. By increasing productivity, 
the Commission has seen its water and sewer rates go from one of the highest in the metro- 
pohtan Boston area to one of the lowest. This rate stabUization has not occurred at the 
expense of service to our customers. Besides aggressively attacking the infrastructure 
problems of the City's water and sewer system, the Commission has also reformed the way 
it does business. The Water and Sewer Departments were merged to form one single 
Operations Division, eliminating cross functionahty and dupUcation of service. 



director's message 







Vincent G. Mannering / 

Executive Director 



The Commission has aggressively embarked on a five-year strategic plan with regards 
to information technology; and in the last two years has implemented PeopleSoft® Human 
Resource Information System and Financial Management System, bringing all of the 
Commission's administrative and financial functions into Y2K comphance. 

The future also holds great promise for the Boston Water and Sewer Commission. 
In 1998, the Commission purchased a 10-acre parcel in the City of Boston, formerly 
occupied by the Stride Rite Corporation. This will enable the Commission to consohdate its 
functions into one site. By consohdating its functions into one area, the Commission will be 
able to increase its efficiency and productivity and its service to the citizens of Boston. 

This Annual Report demonstrates that the Commission has a rock sohd financial 
foundation and strong management initiatives that will enable the Commission to get 
the job done. A city is only as strong as the infrastructure foundation supporting it. 
The Boston Water and Sewer Commission is proud to report that its piece of the 
infrastructure foundation is ready for whatever challenges the new century brings us. 



Pictured above: Dennis A. DiiVlarzio, Cliairman, Board of Commissioners; Catlileen Douglas Stone, Commissioner; 
IVluliammad Ali-Salaam, Commissioner; and Vincent G. iVlannering, Executive Director 









strengthening the 



For the fifth consecutive 

year, the Commission 

proudly announced that 

there would be no increase 

in the water and sewer 

rates for its customers. 



ADVANCING THE FINANCIAL ASSETS is one of the highest 
priorities of the Commission. As a result of exemplary financial 
management in 1998, the Commission ended its fiscal year with 
several upgraded bond ratings, the largest bond issuance in the 
Commission's history and no water and sewer rate increase for 
an unprecedented fifth consecutive year. 

Bond Rating Upgrades At the beginning of the year the 
Commission received two bond rating upgrades: Moody's 
Investor Services upgraded the Commission's bond rating from 
A2 to Al and Standard and Poor's upgraded the Commission's 
rating from A to A+. These ratings are the highest in the 
Commission's history and will save our customers millions of 
dollars in debt service costs. 




Bond Activity The Commission issued 
Series A and Series C Refunding bonds 
which generated a combined $1.9 milhon 
in net present value savings, or 8% of 
refunded par. This is the highest percentage 
savings ever achieved by the Commission in 
a bond refunding issuance. The Series A 
and Series C Refunding bonds will also 
provide to the Commission $6.3 miUion in 
interest savings over the remaining term of 
the bonds and an additional $100,000 of 
rate rehef payments for our customers m 
1999 from the Conrmonwealth Sewer Debt 
Rate Rehef Program. In addition to the 
issuance of the Series A and Series C 
Refunding bonds, $132.5 miUion in revenue 
bonds, with a true interest rate of 4.9%, 
were issued to fund future capital expendi- 
tures. Overall, 81% of the Commission's 



1998 ANNUAL REPORT 



outstanding Revenue bonds carry interest 
rates at or below 5.25%. 

Finally, the Commission became the first 
government entity in New England to accept 
electronic quotes, which were the low bids 
for the sale of its 1998 Series D bond. 

Rates For the fifth consecutive year, 
the Commission proudly announced that 
there would be no increase in the water 
and sewer rates for its customers. By 
incorporating sound financial practices, 
such as the sidjmission of a level-funded 
direct expense budget, the Commission 
has not increased its rates since 1993. 
Currently, the Commission charges one of 
the lowest rates within the MWRA system. 



financial foundatio] 



^ 



'^ 



AVERAGE COST PER FAMILY 

BWSC vs. Other MWRA Customers* 



$700 




1995 1996 1997 1998 

"Charges reflect industry average "typical" household usage of 90,000 gallons or 12,000 cubic feet annually. 



■■■■■■I 

mi 



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^^i^iiiitaiiimg the 



The Commission's 

Operations and Engineering 

Divisions worl< 365 days a 

year to assure the water 

and wastewater systems 

run without interruption. 



THE COMMISSION'S OPERATIONS AJNfD ENGINEERING 

Divisions work 24 hours a day, 365 days a year, to assure the 
water and wastewater systems function without interruption. 
All of Boston sits atop the foundation of water and sewer mains 
that have been constructed over three centuries. The Commission 
continues to build and improve on this foundation through its 
annual Capital Improvement Program (CIP) and by performing 
daUy preventive maintenance on the system. 

Operations Division In 1998, the Commission's Operations 
Division continued its Water Main Flushing Program for the 
second year, flushing 245 miles of main. The Preventive 
Maintenance Catch Basin Cleaning Program was developed and 
implemented, resulting in the cleaning of 7,100 catch basins. 




1998 ANNUAL REPORT 



The installation of a fixed radio base pilot 
meter reading system was completed, with 
1,470 residential radio transmitters and 17 
data collectors installed. Large meter testing 
began, using Rad-Com and Flow Search 
Equipment. Over 3,900 meters were 
replaced, increasing reading percentages 
and revenue returns to the Commission. 

Engineering Division Throughout 

1998, the Engineering Division participated 
in the implementation of the MWRA's 
Combined Sewer Overflow (CSO) Facihties 
Plan. As a result, the first of several con- 
tracts for the Dorchester Sewer Separation 
Project was issued, with an estimated value 
of $13 million. The Dorchester Sewer 
Separation Project is a 7-year project that 



will involve the separation of combined 
sewers throughout Dorchester. Also to 
reheve flooding problems, the Commission 
has initiated a number of projects through- 
out the city. These projects include a 
detailed study of the South End, a project 
to reheve flooding problems in the Arnold 
Arboretum/South Street, Roshndale area, 
and the design of a new 72" drain conduit 
in the Tobin Road/Centre Street, West 
Roxbury area. With respect to day to day 
activities, the Commission oversaw con- 
struction management of $13 miUion in 
projects that included the relaying or 
relining of 16,000 linear feet (U) of sewer 
and drain, and 87,000 If of water relay or 
water rehabiUtation. In addition, 225,000 If 
of television inspection was performed. 



iiilBiitial floiiv 




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DORCHESTER 
SEWER 
SEPARATION 
PROJECT 



the Dorchester Sewer Separation Project involves the separation of 
combined sewers throughout Dorchester. The purpose of the project 
is to reduce pollution levels in Boston Harbor and Dorchester Bay, and to 
lower sewage treatment costs by removing excess flow. 



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enhancing the 



The Web-Site was 

the first project of its l<ind 

undertaken by Commission 

staff and it was designed 

and developed entirely 

in-house. 



TO PREPARE FOR THE Y2K ISSUES that have become a 
standard way of hfe over the past year, the Coimnission has been 
preparing all of its mission critical systems for the "main event" 
of January 1, 2000. Since the early 1990's, the Commission has 
been enhancing its systems to assure readiness for the "Y2K 
Bug." Replacements and upgrades of the Commission's technical 
infrastructure were initiated in December 1996 and continue 
today as new technology and versions of software are released. 
By July 1999, the Commission anticipates that all mission critical 
system compUancy will be completed and tested. 

Applications In 1998, a new year 2000 comphant Human 
Resources Management System, developed by PeopleSoft, Inc., 
was implemented. Data conversion and parallel testing for a 
replacement, year 2000 compUant Financial Management 



1998 ANNUAL REPORT 



System, also developed by PeopleSoft, Inc., 
has been successfidly completed with a "go 
hve" date of January 1, 1999. The Conunis- 
sion's networking infrastructure has been 
upgraded and Windows NT deployment 
has been expanded to a total of 230 users. 
The Commission's ESRI, Inc.-based 
Geographical Information System (GIS) 
continues to develop with the completion 
of an ARCA'iew-based apphcation for easy 
access to digitized water and sewer base 
maps, Boston Street Index, and Ortho- 
photos. The apphcation allows users to 
print maps at various scales, complete 
with template and Commission logo. 

Web-Site Another major accompUshment 
in 1998 was the completion of the Commis- 
sion's Web-Site. The Conunission initiated 
the development of the site in April 1998 



and on December 31, 1998, went hve at 
www.BWSC.org. The Web-Site was the first 
project of its kind undertaken by Conunis- 
sion staff and it was designed and developed 
entirely in-house. The site was developed to 
be used as an additional method of out- 
reach to our customers, the general pubhc, 
other utUities, businesses and students. 

Some of the information available on the 
site includes: 

- DESCRIPTIONS OF THE WATER AND 
WASTEWATER SYSTEMS 

- RATE INFORMATION 

- EMPLOYMENT OPPORTUNITIES 

- NEIGHBORHOOD PROJECT UPDATES 

- COMMUNITY SITE VISITS 

- REQUESTS FOR PROPOSALS/INVITATIONS 
TO BID 

-COMMISSION REGULATIONS 

- FEEDBACK PAGE 

- LINKS TO RELATED AGENCIES 



internal systems 



TIMELINE 



19 



96 



JANUARY 

Internal Code Review 
Initiated 

JUNE 

Strategic Information 
Technology Plan Established 

DECEMBER 

Operating Systems 
Replacement Initiated 



1998 



V^S-. 



JANUARY 

Human Resource 
System Replacement 
Completed 

FEBRUARY 

Compliance Testing 
Initiated 

AUGUST 

PC BIOS Upgrade 
Initiated 



w^^ 



19 



99 



JANUARY 

Financial Management System Replaced 

FEBRUARY 

Server Operating Systems Upgrade 
Initiated 

MARCH 

Telecommunications System 
Replacement Completed; Hand-Held 
Meter Reading Equipment Replacement 
Initiated 

JULY 

Mission Critical System Compliancy 
Completed 

AUGUST 

Contingency Plans Complete 

DECEMBER 

Year 2000 Compliance Testing Complete 



designing tlie future 



The Facility In March 1998, the commission 
purchased a 10-acre parcel located in the Roxbury 
neighborhood of Boston, where it plans to build a 
new facility that will consoUdate all of its opera- 
tions, maintenance and administrative activities 
into one central location. 

The Purpose The consohdation offers the 
Commission a centrahzed facihty that provides 
suitable space to enhance administrative and 
operational efficiencies at a cost considerably less 
than a comparable leasing option. The new facihty 
will provide space for all of the Commission's needs 
such as the machine shops, interior and exterior 
materials storage, administrative offices, parking 



for both fleet and employee vehicles and a fueling 
and washing station for Commission vehicles. 

The Location The new facihty is more centrally 
located than the present facihties. In addition, 
accessibdity via pubhc transportation is increased 
at this new location allowing more of our customers 
an opportunity to visit the new facihty. 

The Move Site preparation and construction 
began in October 1998. The move into the new 
facihty will consist of two phases: Operations 
Divisions in spring 2000 and Administrative 
Divisions in fall 2000. 



1998 ANNUAL REPORT 



independent auditors' report 



THE COMMISSIONERS 

BOSTON WATER AND SEWER COMMISSION: 

We have audited the accompanying balance sheets of the Boston Water and Sewer Conunission (the 
"Commission") as of December 31, 1998 and 1997, and the related statements of operations. Commission 
equity and cash flows for the years then ended. These financial statements are the responsibUity of the 
Commission's management. Our responsibihty 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 beUeve that our audits provide a reasonable 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 31, 1998 and 1997 and the results of its operations and its cash flows 
for the years then ended in conformity with generally accepted accounting principles. 

The year 2000 supplementary information on page 22 is not a required part of the financial statements, but is 
supplementary information required by the Governmental Accounting Standards Board, and we did not audit 
and do not express an opinion on such information. Further, we were unable to apply to the information 
certain procedures prescribed by professional standards because of the nature of the subject matter underlying 
the disclosure requirements and because sufficiently specific criteria regarding the matters to be disclosed have 
not been estabUshed. In addition, we do not provide assurance that the Commission is or will become year 2000 
comphant, that the Commission's year 2000 remediation efforts will be successful in whole or in part, or that 
parties with which the Conunission does business are or will become year 2000 comphant. 

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 statements. Such information has been 
subjected to the auditing procedures apphed 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 1998, the Commission adopted the provisions of Governmental Accounting Standards Board Statement 
No. 31, Accounting and Financial Reporting for Certain Investments and for External Investments Pools. 



K^t^C^l^eu^ l^if^^ick. LCP 



March 30, 1999 



balance sheets 



December 31 , 1998 and 1997 



ASSETS: 

Current assets: 

Cash and cash equivalents (note 8) $ 5,082,191 $ 4,050,618 
Accounts receivable, net: 

Customers, less allowances of 16,035,718 in 1998 and 

$6,472,190 in 1997 (note 1) 14,526,071 20,767,222 
Unbilled revenues, less allowances of $1,703,561 in 1998 and 

$1,702,361 in 1997 (note 1) 8,089,906 8,862,033 

Construction grants receivable 1,278,612 1,337,856 

Bond proceeds receivable (note 4) 130,352,759 — 

Prepaid expenses 278,772 269,934 

Total current assets 159,608,311 35,287,663 



Restricted investments (notes 4 and 8) 241,151,737 275,956,366 
Property, plant and equipment, net (note 3) 455,100,689 433,277,165 
Deferred charges (note 2) 25,726,726 31,025,356 
Bond issue costs, net 3,059,252 2,672,324 

Total assets $884,646,715 $778,218,874 

LIABILITIES AND COMMISSION EQUITY: 

Current UabOities: 

Payable from current assets: 

Accounts payable $ 7,159,313 $ 5,761,067 

Other accrued Uabihties 10,120,896 8,377,396 

Current portion of revenue bonds (note 4) 8,440,000 7,115,000 

25,720,209 21,253,463 

Payable from trusteed assets: 

Current portion of City of Boston bonds (note 4) — 50,000 

Total current Uabihties 25,720,209 21,303,463 

Long-term debt, net (note 4) 345,161,475 265,080,570 

Long-term notes payable (note 4) 35,937,958 34,267,440 

Other long-term habihties 58,426,830 64,731,187 

Deferred credits and reserves (note 2) 288,558,846 266,185,706 



Total habihties 


753,805,318 


651,568,366 


Commission equity: 
Contributed capital 


130,841,397 


126,650,508 


Commitments and contingencies (notes 9, 10, 11 and 12) 
Total habihties and commission equity 


$884,646,715 


$778,218,874 



See accompanying notes to financial statements. 



BOSTON WATER AND SEWER COMMISSION 



1998 ANNUAL REPORT 



statements of operations and commission equity 



Years Ended December 31, 1998 and 1997 



OPERATING REVENUES: 
Water and sewer usage 
Fire pipe 
Other 



Total operating revenues 



^84,371, 106 
2,412,803 
6,305,287 



193,089,196 



$183,255,895 
2,396,537 
6,617,579 



192,270,011 



OPERATING EXPENSES: 
Operations 
Maintenance 

MWRA assessment (note 5) 
Depreciation and amortization 



45,654,617 

5,113,903 

105,461,022 

13,935,085 



43,654,591 

5,445,498 

103,242,409 

13,904,199 



Total operating expenses 



170,164,627 



166,246,697 



Excess operating revenues 



22,924,569 



26,023,314 



NONOPERATING REVENUE (EXPENSE): 
Bond redemption costs (note 4) 
Investment income 
Interest expense 



(5,558,203) 

19,795,336 

(17,096,519) 



18,740,157 

(17,323,597) 



Total nonoperating revenue (expense) 



(2,859,386) 



1,416,560 



Excess revenues before depreciation add-back 

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



20,065,183 
2,307,958 



Accumulated revenues used to offset future rates — end of year 



$ 8,788,235 



27,439,874 
2,189,961 



Excess revenue before transfer requirements 22,373,141 29,629,835 

Excess revenues used to fund reserves and other deferrals (note 2) (23,207,892) (29,376,952) 
Accumulated revenues used to offset future rates — beginning 

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



$ 9,622,986 



Contributed capital, December 31 
Contributions in aid of construction 
Depreciation of related property 



$126,650,508 
6,498,847 
(2,307,958) 



$121,981,722 
6,858,747 
(2,189,961) 



Contributed capital, December 31 



$130,841,397 



$126,650,508 



See accompanying notes to financial statements. 



statements of cash floii^s 



Years Ended December 31, 1998 and 1997 



CASH FLOWS FROM OPERATING ACTIVITIES: 

Excess operating revenues $22,924,569 $26,023,314 
Adjustments to reconcile operating income to net cash: 

Excess revenues used to fund reserves and other deferrals (22,373,141) (29,629,835) 

Depreciation and amortization 13,935,085 13,904,199 
Change in assets and liabilities: 

Accounts receivable, net 6,241,151 3,124,374 

Unbilled revenues 772,127 (582,324) 

Construction grants receivable 59,244 31,102 

Prepaid expenses (8,838) 3,669 

Accounts payable 1,398,246 (4,003,143) 

Other accrued habilities 1,743,500 972,485 

Deferred credits and reserves 22,373,140 29,629,835 

Other long-term habilities (6,304,357) (4,585,592) 



Net cash provided by operating activities 



40,760,726 



34,888,084 



CASH FLOWS FROM INVESTING ACTIVITIES: 

Sale (purchase) of investments, net 
Investment income 



34,804,629 
18,470,233 



(27,345,420) 
18,740,157 



Net cash provided by (used for) investing activities 



53,274,862 



(8,605,263) 



CASH FLOWS FROM CAPITAL AND 
RELATED FINANCING ACTIVITIES: 

Additions to property, plant and equipment 
Proceeds from notes payable 
Payment on bonds 
Proceeds from bonds 
Contributions in aid of construction 
Payment of bond interest 



(33,624,421) 


(23,827,647) 


1,670,518 


13,736,117 


(76,535,000) 


(6,332,480) 


26,082,560 


— 


6,498,847 


6,858,747 


(17,096,519) 


(17,323,597) 



Net cash used for capital and related financing activities 



(93,004,015) 



(26,888,860) 



Net increase (decrease) in cash and cash equivalents 
Cash and cash equivalents at beginning of year 



1,031. 
4,050. 



573 
618 



(606,039) 
4,656,657 



Cash and cash equivalents at end of year 



% 5,082,191 



$ 4,050,618 



NONCASH INVESTING AND FINANCING ACTIVITIES: 

Proceeds of bonds issued in December 1998 and received in 
January 1999 



$130,352,759 



See accompanying notes to financial statements. 



BOSTON WATER AND SEWER COMMISSION 



1998 ANNUAL REPORT 



notes to financial statements 



December 31, 1998 and 1997 

(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 
appUcable, by the Board of Commissioners (the "Board"). The Board is appointed by the City's Mayor subject to confirma- 
tion by the City Council. It 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 consis- 
tent with generally accepted accounting principles ("GAAP") for regulated utiUties (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 capitaUzed 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 reconcUiation between the revenues and expenses of these two 
operating statements for the year ended December 31, 1998 is provided below: 



REVENUES 



EXPENSES 



AS PRESENTED IN THE STATEMENT OF OPERATIONS: 

Operating revenues/expenses 
Other revenues/expenses 



$193,089,196 
19,795,336 



$170,164,627 
22,654,722 



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) 

Investment income (escrowed funds) 

Capital expenditures 

Excess revenue used to offset current rates 

Bond redemption costs 

Other deferrals 



570,428 

154,593 

(8,813,304) 



(3,598,558) 
9,622,986 



192,819,349 



18,562,782 



(8,813,305) 
(3,211,772) 
(1,462,408) 

9,913,671 

(5,558,203) 

(217,674) 



As presented in the Supplemental Schedule 



$210,820,675 



$202,032,440 



The Enabling Act requires that any net surplus, as defined by the rate setting process, be either turned over to the City or 
appUed to offset water and sewer rates for the following year. The Commission has apphed $8,788,235 and $9,622,986 for the 
years ended December 31, 1998 and 1997, 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 post- 
biUing basis that reduce the amount of total h illin gs Accordingly, the 1998 and 1997 total customer bills outstanding of 
$32,581,569 and $39,259,192, respectively, have been reduced by provisions for billing adjustments and sewer abatements of 
$9,615,824 and $2,403,956, respectively, in 1998 and $9,615,824 and $2,403,956, respectively, in 1997. These net billing 
amounts are further reduced by an allowance for uncollectible accounts of $6,035,718 and $6,472,190 in 1998 and 1997, to 
arrive at net accounts receivable. 

(b) Investments 

Investments, consisting of direct and unconditionally guaranteed short-term obhgations of the U.S. Government, repurchase 
agreements and money market funds secured by government securities, are stated at fair value. 

(c) Property, Plant and Equipment 

Property, plant and ecpiipment is stated at historical cost. Depreciation is provided on the straight-line method based upon 
the estimated useful Uves 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 hves. 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 1998 or 
1997 because the difference between interest expense and interest income on unexpended proceeds was not material. 



noteisi to financial sitatements 



December 31, 1998 and 1997 



(d) Depreciation 

Estimated useful lives used in computing depreciation are as follows: 



WATER 

Works 
Meters 
Hydrants 



YEARS 



YEARS 



100 Works 75 

10 Pumping station 35 

40 BUILDINGS 40 

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 Uquid, 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 compo- 
nents of these amounts are as foUows: 



1998 



1997 



Contributions to reserves 

Provision for working capital 

Provision for capitahzed interest 

Principal payments on long-term debt 

Interest paid from escrow fluids 

Capital expenditures 

Depreciation and amortization 

Investment income on project and escrow funds 

Bond redemption costs 

Other 



$18,562,782 

(570,428) 

(154,593) 

10,355,117 

(1,462,408) 

9,913,671 

(11,627,127) 

3,598,558 

(5,558,203) 

150,523 



$18,970,811 

(570,428) 

(154,593) 

8,503,196 

(1,149,643) 

12,235,587 

(11,714,237) 

2,759,462 

496,797 



Total 



$23,207,892 



$29,376,952 



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

1998 

Accrued pension expense 
Debt extinguishment expense 



$14,263,215 
11,463,511 



114,631,411 
16,393,945 



Total deferred charges 



$25,726,726 



$31,025,356 



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 
Self-insurance 



DECEMBER 31, 
1997 



$ 96,394,820 

130,547,334 

27,380,565 

2,240,000 



INCREASE 
(DECREASE) 



$18,562,782 
5,215,537 

(570,427) 



DECEMBER 31, 
1998 



$114,957,602 

135,762,871 

26,810,138 

2,240,000 



Subtotal 
Reduction of future rates 



256,562,719 
9,622,986 



23,207,892 
(834,751) 



279,770,611 
8,788,235 



Total deferred credits and reserves 



$266,185,705 



$22,373,141 



$288,558,846 



BOSTON WATER AND SEWER COMMISSION 



1998 ANNUAL REPORT 



notes to financial statements 



December 31, 1998 and! 997 

(3) PROPERTY, PLANT AND EQUIPMENT 

The cost of water and sewerage property, plant and equipment in service and related accumulated depreciation at December 
31, 1998 and 1997 are as follows: 



1998 



1997 



WATER: 

Works 

Meters and hydrants 



$162,165,940 
13,516,756 



$151,503,838 
19,388,133 



Total water 


175,682,696 


170,891,971 


SEWERAGE: 
Works 
Pumping station 


255,512,601 
6,818,570 


243,396,937 
6,818,570 


Total sewerage 


262,331,171 


250,215,507 


OTHER 

Total property, plant and equipment 
Less accumulated depreciation 


73,771,148 

511,785,015 

91,982,675 


68,140,883 

489,248,361 

95,498,323 


Net property, plant and equipment 
Construction in progress 


419,802,340 
35,298,349 


393,750,038 
39,527,127 


Total 


$455,100,689 


$433,277,165 



(4) LONG-TERM DEBT 

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

A summary of the City bonds and revenue bonds outstanding as of December 31, 1998 and 1997 follows (amounts in 
thousands): 

1998 1997 

City Bonds, bearing interest at a rate of 6.9%, paid off in full in 1998 

Less current insta llm ents 



$ - 



100 
50 



Total City Bonds, net of current installments 



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 6.25% to 6.5%, 
with maturity dates ranging from November 1, 1999 to 2001 

1992 Series A, bearing interest at rates ranging from 5.3% to 5.75%, 
with maturity dates ranging from November 1, 1999 to 2013 

1993 Series A, bearing interest at rates ranging from 4.25% to 5.25%, 
with maturity dates ranging from November 1, 1999 to 2019 

1994 Series A, bearing a variable interest rate (3.7% and 3.2% at 
December 31, 1999 and 1998, respectively), with maturity dates 
ranging from November 1, 1999 to 2024 

1998 Series A, bearing interest rates ranging from 5.0% to 5.1%, 
with maturity dates ranging from November 1, 2014 to 2015 

1998 Series C, bearing interest rates ranging from 4.5% to 5.2%, 
with maturity dates ranging from November 1, 1999 to 2021 

1998 Series D, bearing interest rates ranging from 4.5% to 5.0%, 
with maturity dates ranging from November 1 , 1999 to 2028 

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 


585 


585 


2,955 


14,890 


61,190 


63,755 


97,410 


97,480 


37,800 


38,400 


12,960 


- 


11,300 


- 


132,455 


— 



Less current installments 


356,655 
8,440 


276,350 
7,115 


Total long-term revenue bonds 
Less unamortized issue discount 


348,215 
3,054 


269,235 
4,204 


Net long-term revenue bonds 


$345,161 


$265,031 



notes to financial statements 



December 31, 1998 and 1997 

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

REVENUE BONDS 
PRINCIPAL INTEREST 



1999 $ 8,440 $ 18,767 

2000 8,180 18,334 

2001 8,550 17,910 

2002 8,955 17,464 

2003 9,475 17,005 
Thereafter 313,055 194,148 

$356,655 $283,628 

(a) Current Year Activity 

In December 1998, the Commission issued $132,455,000 of General Revenue Bonds, 1998 Series D (Senior Series) to provide 
funds for the projects undertaken as part of the Commission's ongoing capital improvement program. The majority of these 
proceeds were received in January 1999 and are recorded as bond proceeds receivable as of December 31, 1998. 

On November 2, 1998 the Commission redeemed the remaining $45,065,000 balance of the General Revenue Bonds, 1988 
Series A (Subordinated Series) by utilizing internally available funds on deposit In the Commission's Revenue and Stabili- 
zation Funds. This resulted in savings in debt service of approximately $6.4 milli on per year for the next 10 years. A call 
premium of $207,900 was paid and a charge of approximately $4.9 miUion was recognized in the Statement of Operations for 
unamortized bond issue costs. 

In March 1998, the Commission issued $12,960,000 of General Revenue Bonds, 1998 Series A (Senior Series), which, 
together with available funds of the Commission, were used to current refund $13,165,000 of General Revenue Bonds, 1986 
Series A (Senior Series). As a result of this current refunding, the Commission reduced its total debt service payments over 
17 years by approximately $2.4 million and obtained an economic gain of approximately $1.2 milUon. A charge of approxi- 
mately $219,000 was recognized in the Statement of Operations for unamortized bond issue costs. 

In March 1998, the Commission issued $11,325,000 of General Revenue Bonds, 1998 Series C (Senior Series), to advance 
refund a portion of General Revenue Bonds, 1991 Series A (Senior Series). The proceeds, together with available funds of 
the Commission, were used to purchase government securities sufficient 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 $11,065,000 are no longer considered outstanding under the Commission's "Resolution Establishing Issue of 
Revenue Bonds" (the "Resolution"). As a result of this advanced refunding, the Commission reduced its total debt service 
payments over 23 years by approjcimately $1.9 miUion and obtained an economic gain of approximately $0.8 miUion. A 
charge of approximately $448,000 was recognized in the Statement of Operations for unamortized bond issue costs. 

(b) Prior Year Activity 

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 (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 poUcy 
vrith 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 estabhshraent of an escrow account to provide for future principal and 
interest payments 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 transac- 
tion 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 consid- 
ered defeased. The outstanding debt of $37,640,000 was paid from the 1992 cross-over funds on November 1, 1996. 



BOSTON WATER AND SEWER COMMISSION 



1998 ANNUAL REPORT 



notes to financial statements 



December 31, 1998 and 1997 

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, $158,890,000 remains outstanding at December 31, 1998 on the bond issues that were defeased "in- 
substance." 

The "Resolution Estabhshing 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 1998 at a price of 102% of face value. In 
addition, in compUance with the Resolution, the Commission has estabUshed both trusteed and nontrusteed funds with 
investments, principally short-term securities, which are restricted for payment of specified habUities, capital projects or 
other costs of operations. The components of the trusteed and nontrusteed investments at December 31, 1998 and 1997 are 
as follows: 



TRUSTEED: 

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



1998 



81,329,017 

16,997,371 

1,470,337 

9,930,455 

81,131,233 



1997 



% 82,475,563 

38,724,170 

9,445,701 

8,642,010 

74,160,038 



190,858,413 



213,447,482 



NONTRUSTEED: 

U.S. Treasury notes 

Other government obUgations 

Money market and cash investments 

Open-ended mutual funds 

Commercial paper 

Repurchase agreements 



1,927,227 
13,858,046 
14,407,475 
20,100,576 



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



50,293,324 



62,508,884 



$241,151,737 



$275,956,366 



(c) Long-Tenn 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, 
1998, an aggregate amount of $31,545,790 was received by the Commission. The Conunission is eUgible to receive the 
remaining $788,910 once the projects are completed. For purposes of offsetting principal and interest payments, an amount 
aggregating $22,012,639 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 $27,348,647 at December 31, 1998. 



notes to financial statements 



December 31, 1998 and 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 


1999 


$ 1,232 


$ 1,553 


$ 2,785 


$ 777 


$ 866 


$ 1,643 


$ 819 


$ 323 


$ 1,142 


2000 


1,276 


1,497 


2,773 


743 


867 


1,610 


852 


312 


1,164 


2001 


1,319 


1,436 


2,755 


708 


867 


1,575 


879 


300 


1,179 


2002 


1,375 


1,371 


2,746 


672 


867 


1,539 


920 


287 


1,207 


2003 


1,427 


1,302 


2,729 


635 


867 


1,502 


955 


273 


1,228 


Thereafter 


22,740 


8,541 


31,281 


4,117 


10,027 


14,144 


15,411 


1,726 


17,137 




$29,369 


$15,700 


$45,069 


$7,652 


$14,361 


$22,013 


$19,836 


$3,221 


$23,057 



The Commission has entered into various interest-free loan agreements with the Massachusetts Water Resources Authority 
(the "Authority"). Under these agreements, the Commission received $2,263,384, $528,000 and $1,122,425 in 1998, 1997 
and 1996, respectively, to be repaid in five equal annual installments as part of the Authority's InfUtration/Inflow Local 
Financial Assistance program. The long-term portion of these loans at December 31, 1998 is $2,998,582. In addition, the 
Commission has received interest-free loans from the Authority as part of the Authority's Local Water Infrastructure 
Rehabihtation Program. Under this program the Commission has received $3,754,867 and $4,311,384 in 1998 and 1997, 
respectively. The long-term portion of these loans at December 31, 1998 is $5,590,729. These programs are designed to assist 
service area communities with sewer system rehabihtation. 

(5) MASSACHUSETTS WATER RESOURCES AUTHORITY 

The Massachusetts Water Resources Authority provides all the Commission's water supply and sewer treatment require- 
ments 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 1998 and 
1997 are as follows: 



1998 



1997 



ASSESSMENTS ALLOCATED ON: 

Water usage 
Wastewater usage 



$ 30,951,756 
74,509,266 



$ 29,523,486 
73,718,923 



Total 



$105,461,022 



$103,242,409 



In 1998 and 1997, over 79% and 77%, 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 79% in 1998 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 facihties has resxilted in b illin gs to nine City departments based on actual 
consumption of approximately $2,951,000 and $3,364,000 in 1998 and 1997, respectively. 

The City provides services to the Conunission, including paving and facihties rental. Operating costs billed to the 
Commission by the City were approximately $1,213,800 and $1,275,200 during 1998 and 1997, respectively. Capital costs 
billed by the City were approximately $2,097,700 and $2,627,300 during 1998 and 1997, 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 hens on the City's property tax bdls. Under this agreement, the City provides 
collection services on these bills for an administrative fee. As of December 31, 1998, receivables totaling approximately $2.5 
milhon of billings had been included on property tax bills. During 1998, the City collected and remitted to the Commission 
$312,860. 

At the end of 1995, the Commission implemented its own tax hen program. Under this program, accounts which have unpaid 
balances over two years old are transferred into the tax hen program for collection. As of December 31, 1998, approximately 
$3.4 milhon of this amount remains outstanding. 

(7) RETIREMENT BENEFITS 

The Commission provides retirement benefits to substantially aU 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 



BOSTON WATER AND SEWER COMMISSION 



1998 ANNUAL REPORT 



notes to financial statements 



December 31, 1998 and 1997 

Commission does not provide any other significant postemployment benefits. 

A dispute concerning the Commission's past and future obligations to all Commission employees covered by the SBRS was 
settled in 1986, resulting in a payment of $19,100,000 to the SBRS. This payment was funded primarily through 1985 and 
1986 bond proceeds and is recorded as a deferred charge that will be recovered through future rates. As part of the settle- 
ment 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"). 

(a) 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 System provides retirement, disability and 
death benefits to plan members and beneficiaries. Chapter 32 of the MGL assigns authority to estabhsh and amend benefit 
provisions of the plan. The System issues a pubUcly available financial report which can be obtained through the 
Commonwealth of Massachusetts, Public Employee Retirement Administration ("PERA"), One Ashburton Place, Boston, 
Massachusetts 02108. 

(b) Funding Policy 

Plan members are required to contribute to the SBRS at rates ranging from 5% to 11% of annual covered compensation. 
The Commission is required to pay into the SBRS its share of the remaining systemwide actuarially determined contribution 
plus administration costs which are apportioned among the employers based on active covered payroll. Through fiscal 1998, 
the Commonwealth of Massachusetts reimbursed the SBRS for a portion of benefit payments for cost-of-hving increases. 
Beginning July 1, 1998, the SBRS is locally funding the cost of living adjustments, as approved by the SBRS' Board of 
Retirement, the City's Mayor and City Council. 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, 1998, 1997 and 
1996 were approximately $1,131,000, $1,033,000 and $787,000, respectively, which equaled its required contribution each 
year. Total employee contributions, based on actuarially determined amounts were approximately $1,633,000, $1,578,000 
and $1,473,000 or 7.8%, 7.7% and 7.5% of covered payroU in 1998, 1997 and 1996, respectively. 

(c) Valuation of Investments 

The investment portfoUo 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 portfoho, which is managed by 
independent investment advisors. 

(d) 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 retire- 
ment benefit. The Commission's poUcy is to make additional employer contributions to the Trust Fund based upon the 
actuarially determined cost of future benefits, net of employee contributions. 

• Valuation of Investments 

Trust Fund assets at December 31, 1998 and 1997 are as follows: 



ASSETS (AT FAIR MARKET VALUE): 

Common stock 
International stock 
Mutual funds 
Fixed income 



$27,770,996 

4,323,937 

570,852 

21,612,227 



$28,341,071 

2,610,975 

191,419 

17,190,657 



Total 



$54,278,012 



$48,334,122 



The investment portfoho 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 portfoho. 

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 payroU was approximately $22,111,072. 

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

Active participants $ 25,809,167 

Retired members and beneficiaries 7,841,245 



Total actuarial habUity 
Less actuarially determined net assets 



33,650,412 
(34,333,364) 



Overfunded actuarial habUity 



(682,952) 



notefs to financial statements 



December 31, 1998 and 1997 



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. 

(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; pubUc agencies, municipalities or state obUgations 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 sununary of the Commission's deposits that are (Category 1) fully insured or coUaterahzed with securities held by the 
Commission or its agent in the Commission's name (Category 2) those deposits that are collateralized with securities held by 
the pledging financial institution's trust department or agent in the Commission's name and (Category 3) those deposits that 
are not collateralized as of December 31, 1998 follows: 

TOTAL 



1998 


1 


CATEGORY 

2 


3 


BANK 
BALANCE 


CARRYING 
AMOUNT 


Cash 

Bank money market deposits 


$200,000 


— 


$ 5,307,117 
16,098,220 


$ 5,507,117 
16,098,220 


$ 5,082,191 
15,328,383 


Total 


$200,000 


— 


$21,405,337 


$21,605,337 


$20,410,574 


1997 

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 
investments that are insured, registered or held by the Commission's trustee in the Conunission's name. Category 2 includes 
uninsured and unregistered investments held by the counterparty's trust department or agent in the Commission's name. 
Category 3 includes uninsured or unregistered investments held by the counterparty, its trust department or agent but not in 
the Commission's name. 

The Commission adopted Governmental Accounting Standard Board Statement No. 31, Accounting and Financial Reporting 
for Certain Investments and for External Investment Pools. Investments are recorded at a fair value beginning in fiscal year 
1998. In 1997, investments were recorded at amortized cost which approximated fair value. Fair value is determined based on 
quoted market price. This statement was not retroactively adopted since the effect on the prior year was not material. The 
difference between the amortized cost and the fair value of investments at December 31, 1998 was approximately $1.3 million. 
This amount was recorded as an unrealized gain and included in investment income for the year ended December 31, 1998. 



1998 



CATEGORY 

2 



FAIR 
VALUE 



CATEGORIZED: 

U.S. Government obUgations 

U.S. Government agency obligations 

Repurchase agreements 



$ 81,329,017 
18,924,598 



$ 81,329,017 
18,924,598 



Commercial paper 


— 


101,231,809 


— 


101,231,809 




100,253,615 


101,231,809 


— 


201,485,424 


NOT CATEGORIZED: 

Open-end mutual funds 








24,337,930 


Total 


$100,253,615 


$101,231,809 


— 


$225,823,354 



BOSTON WATER AND SEWER COMMISSION 



1998 ANNUAL REPORT 



notes to financial statements 



December 31, 1998 and 1997 

ESTIMATED 
CATEGORY FAIR 

1997 1 2 3 VALUE 

CATEGORIZED: 

U.S. Government obligations $108,201,840 $ — — $108,201,840 

U.S. Government agency obligations 23,657,352 — — 23,657,352 



Repurchase agreements 
Commercial paper 





18,610,710 
77,253,338 





18,610,710 
77,253,338 




131,859,192 


95,864,048 


— 


227,723,240 


NOT CATEGORIZED: 

Open-end mutual funds 






_ 


22,318,288 


Total 


$131,859,192 


$95,864,048 


- 


$250,041,528 



(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 minimimi lease commitments. In addi- 
tion 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. 

Minimum lease commitments under all operating leases with terms in excess of one year at December 31, 1998 are as follows: 

OFFICE OTHER 

1999 ""^ $ 1,325,717 $ 749,275 

2000 1,325,717 23,908 

2001 1,325,717 23,908 

2002 1,325,717 23,908 

2003 1,325,717 23,908 
Thereafter 19,438,800 382,537 

Total $26,067,385 $1,227,444 

Rent expense under operating leases amounted to $1,783,290 and $1,828,796 in 1998 and 1997, respectively. 

(10) COMMITMENTS 

A major capital improvement program is currently in progress. As part of this program, the Commission has entered into a 
number of contracts for the design and construction of its facilities. Commitments under these contracts aggregate approxi- 
mately $34 miUion as of December 31, 1998. 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 $128.7 milhon 
for 1999 and 2000. Of this amount, approximately $101.1 miUion represents extension and improvement projects and $27.6 
million represents renewal and replacement projects. The extension and improvement projects are expected to be 17% 
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 opera- 
tions 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 purchase price of $11 miUion. The total three-year spending for the new faciUty is $43.3 miUion, of which 
$25. 3 million will be spent in 1999 with $17.9 and $0.1 milhon in years 2000 and 2001, 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 hes within those boundaries. Chapter 152 provides that land held by 
pubhc agencies, including the Commission, is deemed to be held for governmental purposes and therefore wiU be taken 
without consideration to the apphcable agency. The Commission purchased the parcel for $6 milhon, and made improve- 
ments therein, costing approximately $2 million. 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. 



noteis to financial statements 



December 31, 1998 and 1997 

(11) RISK MANAGEMENT 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 limit is $150,000 per 
claim and is supplemented with $5 miEion 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 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 Premium based 

Vehicles Combined single limit of $1 million 

Property Aggregate limit of $41 ,203 ,000 

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

Fiduciary $2 million coverage 

Crime Employee dishonesty coverage of $5 million 

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 reason- 
ably estimated. The Commission has estabUshed a habUity based on historical trends of previous years and attorney's and 
independent insurance reserve appraiser's estimates of pending matters and lawsuits in which the Conunission is involved. 
Unemployment claims paid during 1998 were immaterial. 



Changes for the years ended December 31, 1998 and 1997 are as follows: 



1998 1997 



Beginning balance of reserves $4,296,807 $4,165,390 

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

Workers' compensation (706,631) (631,508) 

General UabiHty (348,932) (396,487) 

Incurred claims 2,732,801 1,159,412 

Ending balance of reserves $5,974,045 $4,296,807 

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 establish- 
ment 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 htigation 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 htigation. 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, 1998, 
the overall clean up costs are estimated to be approximately $506 milhon. However, the extent of the Commission's Uabdity 
for these costs cannot be determined. 



BOSTON WATER AND SEWER COMMISSION 



22 I 23 1998 ANNUAL REPORT 

required supplementary information 

December 31, 1998 and 1997 

YEAR 2000 — UNAUDITED 

The "year 2000 problem" is the result of shortcomings in many electronic data processing systems and other equipment that 
may make operations beyond the year 1999 troublesome. For many years, computer programmers eliminated the first two 
digits from a year when writing programs. Accordingly, many programs, if not corrected, will not be able to distinguish 
between the year 2000 and the year 1900. This may cause the programs to process data inaccurately or stop processing data 
entirely. 

The Commission is well under way with its efforts to ensure that its computer operations are year 2000 compUant. In 
June 1996, immediately after its Strategic Information Technology Plan was finalized, the Commission began preparing 
its computing environment for the year 2000. In accordance with the plan, the Commission's technical infrastructure has 
been updated to accommodate the use of new technology. The plan identified the Conunission's Human Resource Information 
System (HRIS) and Financial Management System (FMS) as two obsolete "mission critical" appUcations that may not 
function properly in the year 2000. On January 1, 1998, the HRIS was replaced with a new chent/server based HRIS 
developed by Peoplesoft, Inc. The FMS was replaced with a new cUent/server based FMS developed by Peoplesoft, Inc. on 
January 1, 1999. With respect to other "mission critical" systems, the action plan called for program code modification to 
the Commission's Customer Information/Billing System which has been completed. The plan also called for replacement 
meter reading equipment scheduled for completion in June 1999. Additionally, contingency plans have been put in place 
should an unexpected error occur in critical technology. To date, the Commission has expended approximately $2 million 
to address year 2000 concerns and expects to spend an additional $0.5 miUion during 1999. 

In early 1998, the Commission's year 2000 Program Office conducted a full inventory of its computing hardware and soft- 
ware. Vendors were soUcited for year 2000 product compUance certification or a plan for remediation should their product 
not be comphant. Vendors' responses were examined and a prioritized action plan was developed for non-compUant or 
questionable inventory items. 

While the Conunission is working dihgently to address the year 2000 problem and, at this time, the Commission does not 
anticipate any significant disruption to its operations or financial condition caused by the year 2000 problem, because of 
the inherent complexity of the task, the Commission cannot provide complete assurance that the year 2000 problem will not 
cause disruptions to its operations or financial activities. Furthermore, although the Commission is monitoring the readiness 
activities of its vendors and suppUers, including the MWRA, failures by such entities to resolve their own year 2000 problems 
could adversely affect the Commission's operations. 



supplemental schedule of revenuefs and expenses 
— rate basis 

Years Ended December 31, 1998 and 1997 



REVENUES: 
Water revenue 
Sewer revenue 



^ 66,828,252 
117,542,854 



I 66,673,734 
116,582,161 



184,371,106 



183,255,895 



Less: 

Adjustments 
Discounts 
Bad debt 



6,804,478 

720,014 

1,288,812 



7,279,381 

741,903 

1,437,706 



Total 



8,813,304 



9,458,990 



Net billed charges 
Prior year surplus 
Miscellaneous revenues: 
Late charge revenue 
Investment income 
Fire pipe revenue 
Other income 



175,557,802 
9,622,986 

2,546,050 

13,650,728 

2,412,803 

7,030,306 



173,796,905 
9,370,103 

2,939,296 

13,041,399 

2,396,537 

7,342,599 



Total 



revenues 



210,820,675 



208,886,839 



DIRECT OPERATING EXPENSES: 

Salaries and wages 

Overtime wages 

Fringe benefits 

Supphes and materials 

Repairs and maintenance 

Utilities 

Professional services 

Space and equipment rentals 

Other services 

Insurance 

Damage claims 

Inventory 

Capital outlay 



23,476,920 


22,230,570 


807,205 


799,512 


3,874,986 


3,482,062 


2,264,173 


1,904,423 


5,113,903 


5,445,498 


532,068 


519,179 


1,630,676 


1,579,685 


1,783,290 


1,828,796 


910,101 


861,431 


320,368 


358,501 


1,088,550 


480,560 


42,167 


383,524 


424,563 


662,161 



Total direct operating expenses 



42,268,970 



40,535,902 



NONOPERATING EXPENSES: 
MWRA assessment 
Capital improvements 
Principal payments 
Interest expense 
Deposits to reserve funds 



105,461,022 

9,489,108 

10,355,117 

15,634,111 

18,562,782 



103,242,409 

11,573,426 

8,503,196 

16,173,954 

18,970,811 



SDWA assessment 


261,330 


264,155 


Total nonoperating expenses 


159,763,470 


158,727,951 


Total current expenses 


202,032,440 


199,263,853 


Current year rate surplus 


$ 8,788,235 


1 9,622,986 



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. 



BOSTON WATER AND SEWER COMMISSION 




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by the Executive Director's Office of tlie Boston Water and Sewer Commission, 
nd Print Production: Champagne/Lafayette Communications inc. 
_ Photography: 

age 6 used with the pg^^^^^^f The Computer iVIuseum. 



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