BOSTON PUBLIC LIBRARY
ANNUAL REPORT
boston water and
Sewer Commission
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Safeguarding VouR Investment in Boston's Future
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in 2010 with funding from
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2008
ANNUAL REPORT
MESSAGE FROM THE EXECUTIVE
For over three decades, Boston Water and Sewer
Commission (BWSC) has carefully and meticulously
planned to provide excellent water and sewer service
regardless of the economic circumstances. By funding an
aggressive Capital Improvement Program (CIP), BWSC
has vastly improved its water and sewer infrastructure.
The proof is in the numbers. In 1977 BWSC leaked
more water (70 mgd) than its total purchases in 2008
(68 mgd). The successful effort to reduce consumption
occurred while funding the dramatic multi-billion dollar
cleanup of Boston Harbor
During the same time, BWSC improved the way it
does its business. By using new technologies, we
became smarter, faster and more efficient. BWSC
revamped business processes and implemented
major upgrades to its human resources, financial
and geographical information systems, allowing us
to perform our services at a fraction of the cost
and with greater efficiency As an example, BWSC
installed a wireless automatic meter reading system
(AMR) for its 88,000 meters. Instead of bimonthly
meter reads, BWSC receives four reads daily vastly
improving customer service while providing BWSC
and its customers an unprecedented ability to
monitor consumption.
These improvements have not gone unnoticed. Even
in these dire economic times. Fitch and S&P upgraded
BWSC's bond rating to its highest rating, citing
system optimization coupled with strong financial
management. These upgrades will allow BWSC to
issue $I50M in bonds at a net present value savings
of over $4M in 2009.
Strong financial management, coupled with system
optimization, allows BWSC to provide superior
customer service. While most utilities have seen
DIRECTOR
double digit rate increases, our rates have increased
only 3.7% since 1995; slightly less than inflation. This
accomplishment is even more impressive considering
BWSC's wholesale cost (MWRA assessment)
increased 68% in the same period.
In 1995, MayorThomas Menino issued the challenge
to provide the best water and sewer services at the
lowest possible cost. With the Mayor's support, we
have done just that.
Sincerely
( ^at*»«^*-»'i--z-*^
Vincent Mannering
Executive Director
Left to Right: Vincent Mannering, Executive Director; Dennis
Dinnarzio, Chair; Board of Commissioners; Cathleen Douglas Stone,
Commissioner; and Muhammad Ali-Salaam, Commissioner
BOSTON WATER AND SEWER COMMISSION
6WSC earned the highest bond ratings in its history
FINANCIAL
LEVERAGING
BWSC has had a long and successful history of improv-
ing and strengthening its standing within the financial
connmunity. BWSC has embarked upon a course
that continues to confirm its reputation as a stable
and well-established financial operation. Therefore, it
is quite significant that even during this time of dete-
riorating financial conditions, two bond rating agencies
announced in 2008 that BWSC had earned ratings
upgrades. This sends a clear signal to the financial
community of BWSC's strong liquidity position and
prudent financial management. BWSC now has the
highest bond ratings in its history: AA from Fitch Inves-
tor Services and AA+ from Standard & Poor's. These
upgrades have important implications for our custom-
ers because they guarantee a lower interest rate when
financing and issuing bonds in the marketplace. The
proceeds from these bonds fund the Capital Improve-
ment Program (CIP), which provides a more efficient and
cost-effective water and sewer system.
rehabilitation of
Infrastructure
Between 1977 and 2008, BWSC has replaced or
relined three quarters of its total linear miles of
water mains, resulting in lower maintenance costs and
improved water service. This work, in conjunction with
the Leak Detection Program and improved metering
systems, has reduced the annual unbilled water, which
is the difference between water purchased from the
Massachusetts Water Resources Authority (MWRA)
and water sold to BWSC customers. The total
reduction in unbilled water has been from 70 mgd
(million gallons per day) in 1 977 to 1 0.9 mgd in 2008;
an 84% reduction.
Improvements to the sewer system in the past three
decades have significantly increased the system's
capacity and virtually eliminated overflows from com-
bined sewers into Boston Harbor and other receiving
waterways. The work included the construction of two
major interceptors, the rehabilitation of an additional
interceptor and the elimination of 12 combined sewer
overflow (CSO) outfalls. In addition, BWSC recently
Infrastructure improvements at Bulfinch Triangle
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ANNUAL REPORT
completed 6 extensive sewer separation projects
throughout Dorchester and in the areas tributary to
the Stony Brook, BWSC is also currently connpleting
two more: the Bulfinch Triangle and Reserved
Channel Sewer Separation Projects. These important
modernizations and corrections to the system have
resulted in meaningful savings through the separation
of storm and wastewater, significantly reducing the
volume and expense of effluent transported to the
MWRA's Deer Island Treatment Plan.
PRESERVATION OF REVENUE
In addition to the bond upgrades, BWSC has initiated
other actions that enhance revenue such as its
Collection Program. By employing a fully-integrated
program which includes automated dunning, tax liens,
and, as a last resort, a shut-off program, BWSC has
expanded and strengthened the collection of its rates
and charges. Such efforts have proven so successful
that BWSC's collection rate remains consistently well
above the industry average.
As the economy recovers, BWSC will continue to
monitor the financial situation and make adjustments
accordingly BWSC will also utilize multiple funding
sources for improvements and will take advantage of
state and federal financial assistance programs.
Collector! rates remain above the industry average
New storm drain for the Reserve Channel Project
the bond rating upgrades, the cost-effective CIP projects
and the expanded Collection Program, BWSC's outlook
for the future is positive.
INTEGRATED
TECHNOLOGY
Understanding the Value of IT Planning, BWSC has
significantly increased its use of technology. During
the past 1 5 years, BWSC has become more efficient,
reduced costs and provides a much higher level of
service to its customers. In 1996, BWSC developed
its first Strategic Information Technology Plan that
defined a road map for preparing BWSC for the
year 2000 and addressed issues related to a lack of
systems integration, standardization and software
compatibility. To meet the future computing needs of
BWSC, the plan called for an immediate technological
infrastructure upgrade and implementation of a
BOSTON WATER
AND
SEWER COMMISSION
STRATEGIC
INFORMATION
Technology Plan
Final RefMrt
Strategic planning guides developnnents in teclinology
Geographical Information System (GIS). In addition,
the plan also called for state-of-the-art mission critical
software applications for human resource management,
financial management, fleet management, work order
management, preventative maintenance and computer
aided drafting and design. The investments quickly paid
off as BWSC became operationally more efficient and
armed with a strong and robust data repository ready
for the 2 I st Century
In 2002, BWSC revised its Strategic Information
Technology Plan after successfully implementing more
than 80% of the original plan recommendations. The
primary focus of the revised plan was to leverage
the technological investments made to date, provide
superior services and realize a significant cost savings
through data repository expansion and data integration.
Using new technologies, BWSC has transformed the
way it conducts its day-to-day business and the results
are superior
The drive toward exploiting technology to improve
services was seen throughout 2008 with upgrades
to BWSC's Oracle and Ingress databases. Fleet and
Facilities work order systems, GIS system and in the
wide deployment ofportal technology This technology
allows representatives from one department to
access data to inform customers about the status of
work being performed by another department. The
acquisition of the best technologies has been a central
premise in BWSC's improved services, allowing BWSC
to share meaningful data with its customers.
THE Impact of Technology
ON Customer Relations
In 2008, BWSC undertook an agency-wide effort
to refine how information was made available to its
customers. This effort entailed a total redesign of
BWSC's web site, making the site completely accessible.
This redesign of the web site provides more relevant
data to customers concerning water consumption,
billing and payment histories, construction activity
employment opportunities, revisions in regulations as
well as access to forms for doing business with BWSC.
When the new site went live in May 2009, the results
were beyond expectations. The unconditional success
of the web site was a direct result of the many hours
BWSC personnel spent on its development over
the course of 2008 and well reflects BWSC's goal
of reshaping its relationship with customers through
technology
CUSTOMER
PROGRAMS
Over the years, BWSC has originated a number
of customer programs that provide financial as-
sistance for repairs. The three major programs
are: Leak up to Owner (LUTO) Program, Sewer
Lateral Financial Assistance Program and the Lead
Replacement Incentive Program.
Customers can apply for financial assistance through special
programs
2008
ANNUAL REPORT
LEAK UP TO OWNER (LUTO)
PROGRAM
Established in 1996, this program has proven
to greatly assist BWSC's customers. Since its
inception, approximately 1,100 customers have
taken advantage of its benefits. Under this program,
eligible residential property ov^ners can contract
with BWSC to have a service leak on their property
repaired at a reasonable cost, guaranteed not to
diverge from the estimate. This cost can be repaid
either in a lump sum or in 24 equal installments,
interest free, incorporated into the customer's
water and sewer bill.
Sewer Lateral financial
Assistance program
Under the Sewer Lateral Financial Assistance
Program, customers may be eligible for financial
assistance from BWSC for up to $3,000. Although
the sewer lateral is the responsibility of the
property owner, a blockage or collapse can be
destructive and pose health risks. Therefore, it is
important that the lateral be fixed promptly and
correctly. To be eligible for financial assistance,
the lateral must be completely broken or blocked
and require excavation in the public way to repair
Between 1999 and the present, an estimated
1,200 customers have been assisted through this
program.
Lead Replacement
Incentive program
Many of Boston's homes were built prior to 1 950 and
may have lead service lines running from the property
line to the water meter In June 2004, the Board of
Commissioners of BWSC approved a program to
encourage Boston's residential property owners to
replace the private lead waterservice at their properties.
Representatives offer personalized assistance
Financial assistance is available in the form of a credit
up to $ 1 ,000 towards the cost of replacement and
provides the homeowner with the ability to pay the
remaining balance over a 24-month period, interest free,
in their bill. In 2005, BWSC notified 4,507 customers
who had private lead water services (which represents
5.2% of the total connections). Since the creation of
this program, BWSC has received requests from ower
1 ,550 customers and replaced over 650 private lead
service lines.
A disruption in either water or sewer service can pose
a trying experience for any household. BWSC's design
of these programs is to resolve disruptions quickly
reliably and at the most reasonable expense possible. In
2008, nearly 250 customers availed themselves of these
services. Together the LUTO, Sewer Lateral and Lead
Replacement Programs remain among the most well
received services that BWSC provides.
Customer and work order data can be accessed across
departments
CONSOLIDATION OF
FACILITIES
During a 24-hour period in February 200 1 , a seamless
relocation was made to a modern facility, specifically de-
signed to house a water and sewer agency that services a
major American city The relocation consisted of BWSC's
570 employees and its hundreds ofvehicles, tools, supplies
and extensive inventory of heavy equipment and machin-
ery BWSC's move to its new headquarters at 980 Ham-
son Avenue in the Roxbury neighborhood of Boston was
perhaps the most important development in BWSC's his-
tory and marked a turning point in the agency's ability to
respond to customer and operational needs.
By the mid 90's, it had become clear to senior man-
agement that the physically decentralized operation of
BWSC was the foremost impediment to its continued
development. Identifying an appropriately sized parcel of
land located within the City of Boston was no easy task
However when the national contraction in urban manu-
facturing also hit Boston, an eleven-acre site almost tailor
made for BWSC became available.
The site was large, centrally located and could meet all of
the physical needs of BWSC. From a financial perspec-
tive, a centralized facility could be realized at a significant
savings over the comparable option of continued leasing
of the four existing BWSC facilities. When this attractive,
state-of-the art facility opened in 200 1 , it offered BWSC,
for the first time, suitable space to enhance administrative
and operational efficiencies while increasing the quality
of services to its customers. In addition, the savings real-
ized by this achievement has been in the tens of millions
of dollars.
BWSC consolidated facility at 980 Harrison Avenue, Boston
200S
ANNUAL REPORT
Emergency response and
Day-to-Day Operations
Centralization has produced many benefits. Being
centrally-located within the City with all vehicles under
one roof, means that the proper emergency vehicles can
be dispatched and quickly proceed to the emergency An
emergency generator capable of providing the electrical
needs to support emergency response departments was
installed and provides an important buffer against loss of
power All materials are now stored at this facility so
that monitoring and maintaining appropriate supplies are
optimized. A modern, well-equipped automotive section
provides the latest diagnostic and repair equipment
available, keeping the fleet in top condition.
With a centrally located facility, vehicles can be
dispatched quickly
Customer Accessibility
and enhanced services
The new facility is accessible through improved public
transportation and provides a parking lot for customers
and visitors. Customers and visitors appreciate both
the attractive design and spacious layout of the public
areas as well as the opportunity to conduct "one-stop
shopping" for all BWSC services. Customers wishing
information on their accounts, BWSCs programs, billing
history etc., will find this information at the new facility.
In addition, property owners and contractors starting a
construction project will find that Engineering Customer
Services makes available all necessary information for
working on or around the water and sewer systems.
THE Green-Approach
Water is recycled for vehicle washing
Although not popularized until recently, the new
facility was designed in 1999 as a "green building."This
environmentally-sensitive building makes use of natural
lighting in most areas and has installed energy-efficient
occupancy sensors that automatically shut off office
lights if there is no one in the room. Water is recycled
in the wet laboratory and in the vehicle wash building.
The new facility also contains equipment for recycling
antifreeze and storing vehicle oils and fluids in an
environmentally secure storage area. And finally the
installation of a new, energy-efficient electrical system
and a computerized HVAC system ensure that the
building runs smoothly consumes less and generates
lower electrical and fuel bills.
Information Technology
(IT) Improvements
With a larger; centralized facility IT upgrades and
improvements were aggressively and successfully
implemented. The consolidation effort provided for
the opportunity to install a new, high-speed computer
networking environment that is capable of supporting
data intensive applications such as GIS. Also, a new
telecomnnunications system was installed with
Automatic Call Distribution (ACD) features designed
to support BWSC's Customer Services, Collections,
and Operations Call Centers. And finally, a centralized
Data Processing Center was established with high-
speed printing capability used for printing customer
bills in-house as well as other large scale documents.
Organizational
Development
It was fully expected that the long sought acquisition
of a modern, well-equipped headquarters would
have a dramatically positive effect on all aspects of
BWSC's operations, including the savings realized
through consolidation. What was less clear was the
effect that centralizing all personnel in one location
would have on the development of technology and
programs. Since relocating to Harrison Avenue,
BWSC has implemented programs in Automatic
Meter Infrastructure, leak detection, lead service
removal, GIS and web-based customer services,
which have become the benchmark for the industry
The diagonal integration of project management for
these programs was greatly enhanced by the physical
consolidation of executive leadership with key
operational stakeholders and the technology used in
implementing the programs.
During 2008, BWSC proudly hosted dozens of visitors
from the United States and Canada who have sought
to emulate BWSC's success with the development of
better technology to more efficiently manage their
own systems. That BWSC has become an incubator
for such technology is in large measure owed to the
benefits realized from its consolidated facility
Project Management Model
Project Team Model
Since 2002 BWSC has utilized a diagonally integrated management model for all major projects
200S
ANNUAL REPORT
BOSTON WATER AND SEWER COMMISSION
Financial Statements, Required Supplementary
Information and Other Supplemental Information
December 3 1 , 2008 and 2007
(With Independent Auditors' Report Thereon)
BOSTON WATER AND SEWER COMMISSION
December 3 1 , 2008 and 2007
Table of Contents
Independent Auditors' Report
Required Supplementary Information:
Management's Discussion and Analysis
FINANCIAL STATEMENTS:
Statements of Net Assets
Statements of Operations
Statements of Cash Flows
Notes to Financial Statements
Page
II
2-15
16
17
18
19-37
REQUIRED SUPPLEMENTARY INFORMATION:
Schedule of Funding Progress - OPEB 38
Other Supplemental Information:
Schedule I - Supplemental Schedule of
Revenues and Expenses - Rate Basis 39
"ffA
200S
ANNUAL REPORT
Independent Auditors' Report
The Commissioners
Boston Water and Sewer Commission
We have audited the accompanying statements of net
assets of the Boston Water and Sewer Commission
(the Commission) as of December 3 1 , 2008 and 2007,
and the related statements of operations 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 auditing
standards generally accepted in the United States of
America. 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 consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an
opinion on the effectiveness ofthe Commission's internal
control over financial reporting. Accordingly we express
no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred
to above present fairly in all material respects, the
financial position ofthe Commission at December 31,
2008 and 2007, and the results of its operations and its
cash flows for the years then ended in conformity with
U.S. generally accepted accounting principles.
As described in note 15, the Commission, in fiscal
2008, implemented Governmental Accounting Stan-
dards Board (GASB) Statement No. 49, Accounting
and Financial Reporting for Pollution Remediation
Obligations.
The Management's Discussion and Analysis on
pages 12 through 15 and the Schedule of Funding
Progress - OPEB on page 38 are not required parts of
the basic financial statements, but are supplementary
information required by U.S. generally accepted
accounting principles. We have applied certain
limited procedures, which consisted principally of
inquiries of management regarding the methods
of measurement and presentation of the required
supplementary information. However, we did not
audit the information and express no opinion on it.
Our audits were conducted for the purpose of
forming an opinion on the basic financial statements.
The accompanying other supplemental information
in schedule I is presented for purposes of additional
analysis and is not a required part ofthe basic financial
statements. Such information has been subjected to
the auditing procedures applied in our audits ofthe
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.
f<>»H^
LLP
September 4, 2009
BOSTON WATER AND SEWER COMMISSION
MANAGEMENT'S
DISCUSSION AND ANALYSIS
Required Supplementary Information,
December 3 1 , 2008 and 2007
(Unaudited)
OVERVIEW
Upon its creation in 1977, the Boston Water and
Sewer Commission (the Commission) assumed the
responsibility to provide water distribution, waste-
water collection and storm water drainage services
in the City of Boston (the City).
The Commission has realized a rate basis surplus
from its operation in each year since its inception.
In accordance with the Boston Water and Sewer
Reorganization Act of 1977 (the Enabling Act), the
Commission applies surpluses to reduce its rates in
succeeding years.
To accommodate the rate making process, the
Commission follows the accounting standards set
forth in Statement of Financial Accounting Standards
(SFAS)No.7l. SFASNo.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).
The statements of net assets provide information
on the assets and liabilities of the Commission,
with net assets reported as the difference between
assets and liabilities. The statements of operations of
the Commission reflect all revenues earned and all
expenses incurred.
Condensed financial information for the most recent
fiscal years is presented in this section of the report.
Condensed Financial information (in thousands)
2008
2007
2006
Current assets
Capital assets, net
Other assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
Net assets:
Invested in capital assets, net of related debt
Restricted net assets
Unrestricted net deficit
Total net assets
45,063
978,931
201,938
38,912
922,399
207,757
35,105
872,518
216,671
1,225,932
1,169,068
1,124,294
43,612
864,725
92,876
773,007
75,580
759,125
908,337
865,883
834,705
574,222
92,625
(349,252)
533,178
84,734
(314,727)
516,473
83,184
(310,068)
317,595
303,185
289,589
12
200S
ANNUAL REPORT
During 2008, the Commission saw a siiglnt increase
in total assets and in total liabilities, resulting in an
increase in total net assets of $ 14.4 million, or 4.7%. In
2007, net assets totaled $303.2 million, an increase of
$ I 3.6 million, or 4.8% from 2006. The Commission's
2008 operations resulted in a budgetary surplus of
approximately $60,000, compared to approximately
$8 1 ,000 in 2007 and $ I 34,000 in 2006.
The Commission invested in various capital assets,
including capital improvement projects, machinery
and equipment, buildings, and improvements. These
investments, net of accumulated depreciation, totaled
$978.9 million, v^hich is 6.1% higher than in 2007.
In 2007, these investments totaled $922.4 million,
an increase of $49.9 million, or 5.7% over the 2006
total investment in capital assets. These increases in
capital assets are the result of continuous upgrade
and replacement of the Commission owned water
and sewer infrastructure.
Total operating revenues in 2008 were $269.5 million,
which IS 2.9% greater than in 2007. Total operating
revenues in 2007 were $261.9 million, which is 7.0%
greater than in 2006. Operating revenues consist of
water and sewer revenue, fire pipe revenue and other
income. Water and sewer revenue in 2008, 2007 and
2006 represented 96.8%, 96.6% and 95.1% of total
operating revenues, respectively The increases in
2008 and 2007 operating revenues were primarily
driven by a 5.6% and 9.25% average rate increase,
respectively
Total operating expenses in 2008 were $254.7 million,
which represents an increase of 6.6% from 2007.
The increase in 2008 operating expenses was
primarily due to a 3.7%, or $5.9 million, increase
in the Massachusetts Water Resources Authority
(MWRA) assessment coupled with a $9.4 million
expense that reflects the Commission's actuarially
required contribution for post-employment benefits
other than pensions calculated in accordance with
Condensed Financial Information (in thousands)
2008
2007
2006
Operating revenues:
Water and sewer usage
Other
Operating expenses
Excess operating revenues
Investment income
Interest expense
Total nonoperating net expense
Excess revenues before capital
grants and contributions and
transfer requirements
Capital grants and contributions
Excess revenues used to fund reserves and
other deferrals
Change in accumulated revenues used to offset
fiiture rates
Change in net assets
Net assets, beginning of year
Net assets, end of year
260,915
8,566
254,696
252,920
8,964
238,979
232,827
11,980
223,294
14,785
22,905
21,513
9,041
(14,914)
13,735
(19,188)
10,889
(17,877)
(5,873)
(5,453)
17,452
(6,988)
8,912
14,525
29,249
21,454
18,649
(23,772)
(25,363)
(19,382)
21
53
13,596
448
14,410
14,240
303,185
289,589
275,349
317,595
303,185
289,589
13
GASB Statement No. 45, which was implemented
in 2007. Total operating expenses in 2007 were
$239.0 million, which represents an increase of
7.0% from 2006. The increase in 2007 expenses
was almost exclusively driven by an increase in the
MWRA assessment. Operating expenses consist of
operations and maintenance, MWRA assessment,
and depreciation and amortization. The MWRA
assessment is the largest expense incurred by the
Commission, representing 67.7%, 66.8% and 68.6% in
2008, 2007 and 2006, respectively of total operating
expenses.
CAPITAL ASSETS
In fiscal year 2008, capital improvement project addi-
tions related to water, sewer and meter works totaled
$28.3 million, of which $14.4 million was financed
with bond proceeds. Active capital improvement
project expenditures (in millions) are as follows:
Relay of water mains $
8.6
6.4
Reline of water mains
Rehabilitation/replacement of sewers or
1992 Series A
storm drains
3.4
1993 Series A
Interceptor improvements
1.5
1994 Series A
Separation of combined sewers
6.4
1998 Series A
Infiltration and inflow
1.7
1998 Series C
Meter replacement
0.3
1998 Series D
$
98 ^
2003 Series A
2004 Series A
DEBT PLAN
The Commission is empowered by the Enabling Act to
issue bonds and notes payable solely constituted on the
general obligation of the Commission. The Commission
has no legal restrictions concerning the amount of debt
which it may have outstanding, subject to the coverage
requirements described below.
The Commission issues General Revenue Bonds to
finance portions of its capital improvement projects.
The Commission's 2009-201 I capital budget, which
totals $171.4 million, anticipates that projects totaling
$ 1 23.4 million, or 72% of the Commission's 2009-20 1 I
capital budget, will be funded from bond proceeds. The
2009 budget for debt service is $40.8 million.
The Commission currently has nine series of General
Revenue Bonds outstanding at the end of 2008, totaling
approximately $294.5 million as follows (in millions);
26.4
46.7
29.7
13.0
11.2
105.9
11.5
50.1
The Commission's 2009-201 I capital budget includes
projected expenditures of $ 1 7 1 .4 million for infrastruc-
ture and capital projects.The major projects are for the
rehabilitation of water mains and the replacement/re-
habilitation of the sewer system. Some water projects
are financed on a pay-as-you-go basis combined with
an interest free loan for water rehabilitation provided by
the MWRA. The majority of the sewer improvements
along with the installation of a new radio frequency
meter reading system will be financed through bond
proceeds. However there are sewer improvements that
are funded through the utilization of the MWRA loan
programs. Please refer to footnote 3 for more detailed
capital asset activity
294.5
The Commission did not issue any General
Revenue Bonds in 2008 or 2007. Please refer to
footnote 4 for more detailed long-term debt activity
14
200S
ANNUAL REPORT
DEBT SERVICE COVERAGE
REQUIREMENTS
The Commission's bond covenants require that rates
and charges be at least sufficient to provide revenues
(i) to pay all current expenses of the Commission, (ii) to
pay the principal of premium if any and interest on all
bonds issued by the Commission as they become due
and payable, (iii) to create and maintain such reasonable
reserves as may be reasonably required by any trust
agreement or resolution securing bonds, (iv) to provide
funds for paying the cost of all necessary repairs, re-
placements and renewal of the systems and (v) to pay
or provide for any and all amounts which the Commis-
sion may be obligated to pay or provide for by law or
contract. The Commission is also required to establish
and maintain rates and charges at levels sufficient so that
total net revenues in each year during which bonds are
outstanding will equal at least 125% of (I) the bond
debt service requirement during such year less (2) the
amount, if any of bond proceeds available to pay interest
becoming due in such year on bonds outstanding as of
the first day of such year The Commission has exceed-
ed the 1 25% debt service coverage requirement of the
Resolution in each year since its inception in 1 977.
ADDITIONAL BONDS AND
REFUNDING BONDS
The Enabling Act permits the issuance of additional bonds
for paying the cost of any project, making deposits in
various funds established under the Enabling Act, paying
costs of issuance, paying the principal, premium and
interest on any notes issued in anticipation of additional
bonds, or any combination of the above.
Refunding bonds may also be issued by the Commission
only upon certifying that the aggregate debt service in
each fiscal year in which Refunding Bonds are outstanding
will not be increased as a result of the issuance of the
Refunding Bonds; provided that, in lieu of such certification,
the Commission may deliver to the Trustee certificates
satisfying the conditions described above for the issuance
of additional bonds.
BUDGETS AND RATES
The Commission from 1 994 to 200 1 was able to
maintain its water and sewer rates to its customers
without an increase. Additionally, the Commission is
required by law to be self-sustaining, to set its rates at
a level sufficient to cover expenses and debt service
requirements each year
In 2006, the Commission modified its inclining block
rate structure. The number of rate blocks was reduced
from ten to six, thereby making the structure easier to
understand for customers while still promoting water
conservation and generating sufficient revenue; average
water and sewer rates were increased by 9.85%. In 2007
and 2008, the Commission increased its water and sewer
rates by an average of 9.25% and 5.6% respectively
The major reasons behind these increases were: (i) the
increase in assessment paid to the Massachusetts Water
Resource Authority (MWRA), and (ii) the decline in
water sales due to general water conservation efforts
of individuals and businesses throughout the City
Effective January 1 , 2009, the Commission increased its
water and sewer rates by an average of 3.48%.
CREDIT RATINGS
The Commission's revenue bonds are rated "Aa2" by
Moody's Investors Service, AA+ by Standard and Poor's
and "AA" by Fitch Ratings.
CONTACTING THE
COMMISSION'S FINANCIAL
MANAGEMENT
The report is designed to provide our bondholders,
customers and other interested parties with a
general overview of the Commission's finances and
to demonstrate the Commission's accountability for
the revenue it receives. If you have questions about
this report or need additional information, contact
the Boston Water and Sewer Commission, Finance
Department, 980 Harrison Avenue, Boston, MA 02 1 1 9.
15
BOSTON WATER AND SEWER COMMISSION
Statements of Net Asset
December 3 1 , 2008 and 2007
ASSETS 2008 2007
Current assets:
Cash and cash equivalents (note 1 0)
Accounts receivable, net:
Customers, less allowances of $2,839,652 in 2008 and 2007 (note 1)
Unbilled revenues, less allowances of $1,702,361 in 2008 and 2007
Construction grants receivable
Prepaid expenses
6,067,141
5,478,302
20,958,155
17,499,208
5,982
532,802
18,600,179
14,137,162
106,830
589,418
Total current assets 45,063,288 38,911,891
Noncurrent assets:
Restricted cash and investments (notes 4, 8 and 10) 185,455,883 189,695,465
Capital assets (note 3):
Depreciable, net 778,923,006 710,502,784
Nondepreciable 200,008,052 211,896,567
Deferred charges (note 2) 15,197,472 16,617,577
Bond issue costs, net 1,285,113 1,443,609
Total noncurrent assets 1,180,869,526 1,130,156,002
Total assets 1,225,932,814 1,169,067,893
LIABILITIES
Current liabilities:
Payable from current assets:
Accounts payable 15,280,353 18,060,589
Other accrued liabilities 5,287,405 5,746,352
Commercial paper notes (note 5) — 46,600,000
Current portion of long-term notes (note 4) 9,6 1 4,699 9,644,2 1 6
Current portion ofrevenue bonds (note 4) 13,430,000 12,825,000
Total current liabilities 43,612,457 92,876,157
Noncurrent liabilities:
Long-term debt, net (note 4) 351,885,016 292,901,305
Long-term notes payable (note 4) 43,196,205 45,285,880
Other long-term liabilities (note 9) 1 8,700,233 7,627,5 1 0
Deferred credits and reserves (note 2) 450,943,361 427,191,776
Total noncurrent liabilities 864,724,815 773,006,471
Total liabilities 908,337,272 865,882,628
NET ASSETS
Net assets:
Invested in capital assets, net of related debt 574,222,454 533,177,676
Restricted for debt service 46,597,362 38,722,718
Restricted for capital assets — 699,800
Restricted for debt covenants 46,027,895 45,312,437
Unrestricted net deficit (349,252,168) (314,727,366
Commitments and contingencies (notes 11, 12, 13 and 14)
Total net assets $ 317,595,543 303,185,265
16 See accompanying notes to financial statements
200S
ANNUAL REPORT
BOSTON WATER AND SEWER COMMISSION
Statements of Operations
Years ended December 3 1 , 2008 and 2007
2008 2007
Operating revenues:
Water and sewer usage (note 7) $ 260,914,777 252,920,327
Fire pipe 3,720,058 3,595,899
Other (note 1) 4,846,460 5,367,899
Total operating revenues 269,481,295 261,884,125
Operating expenses:
Operations 64,075,096 53,882,665
Maintenance 5,284,662 6,582,756
MWRA assessment (note 6) 165,663,201 159,736,851
Depreciation and amortization 19,673,414 18,776,772
Total operating expenses 254,696,373 238,979,044
Excess operating revenues 14,784,922 22,905,081
Nonoperating revenue (expense):
Investment income 9,041,352 13,735,219
Interest expense (14,914,395) (19,188,062)
Total nonoperating net expense (5,873,043) (5,452,843)
Excess revenues before capital grants and
contributions and transfer requirements 8,911,879 17,452,238
Capital grants and contributions 29,249,966 21,453,580
Excess revenues before transfer requirements 38, 1 6 1 ,845 38,905,8 1 8
Excess revenues used to fund reserves and other deferrals (note 2) (23,772,174) (25,362,776)
Change in accumulated revenues used to offset future rates (note 2) 20,606 53,354
Change in net assets 14,410,278 13,596,396
Net assets, beginning of year 303,185,265 289,588,869
Net assets, end of year $ 317,595,543 303,185,265
See accompanying notes to financial statements 17
BOSTON WATER AND SEWER COMMISSION
Statements of Cash Flows
Years ended December 3 1 , 2008 and 2007
Cash flows from operating activities:
Receipts from customers
Payments to suppliers
Payments to employees
Net cash provided by operating activities
Cash flows from investing activities:
Investment income
Sales (purchases) of investments, net
Net cash provided by investing activities
Cash flows from capital and related financing activities:
Purchase of capital assets
Proceeds from debt
Payment of bond principal
Proceeds from commercial paper
Paydown of commercial paper
Capital contributions
Payment of bond interest
Net cash used in capital and related financing activities
Net (decrease) increase
Cash, cash equivalents, beginning of year
Cash, cash equivalents, end of year
Reconciliation of operating income to net cash provided by
operating activities:
Excess operating revenues
Adjustment to reconcile operating income to net cash:
Depreciation and amortization
Change in assets and liabilities:
Accounts receivable, net
Unbilled revenues
Prepaid expenses
Accounts payable
Other accrued liabilities
Other long-term liabilities
Net cash provided by operating activities
2008 2007
263,761,273
(186,205,325)
(38,789,829)
256,878,489
(184,655,416)
(34,287,435)
38,766,119
37,935,638
9,041,352
888,677
13,735,219
6,626,056
9,930,029
20,361,275
(73,227,378)
7,525,024
(22,469,216)
25,300,000
29,249,966
(14,485,705)
(71,668,695)
7,567,158
(20,570,519)
152,800,000
(131,200,000)
21,453,580
(17,982,160)
(48,107,309)
(59,600,636)
588,839
(1,303,723)
5,478,302
6,782,025
6,067,142
5,478,302
14,784,922
22,905,081
19,673,414
18,776,772
(2,357,976)
(3,362,046)
56,616
(642,587)
(458,947)
11,072,723
(1,757,964)
(3,247,672)
(17,881)
(2,019,097)
468,601
2,827,798
38,766,119
37,935,638
18 See accompanying notes to financial statements
200S
ANNUAL REPORT
BOSTON WATER AND SEWER COMMISSION
Notes to Financial Statements
December 3 1 , 2008 and 2007
(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 applicable, by the board of
commissioners (the Board). The Board is appointed by
the City's Mayor subject to confirmation 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 in accordance with
U.S. 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 Statement of Financial Accounting Standards (SFAS)
No. 7 1 , Accounting for the Effects of Certain Types of
Regulation. SFAS No. 7 1 allows certain board approved
(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
statements 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 3 1 , 2008 is provided below:
As presented in the statements of operations
Operating revenues/expenses
Other revenues/expenses
Total
Reclassifications and deferrals:
Contributions to reserves
GAAP adjustments
Excess bond payments over depreciation and amortization
Interest expense (escrowed funds)
Investment income (escrowed funds)
Capital expenditures
Excess revenue used to offset current rates
Other deferrals
As presented in the supplemental schedule,
rate basis
Revenues
269,481,295
9,041,352
278,522,647
(6,572,381)
(1,943,266)
80,754
$ 270,087,754
Expenses
254,696,373
14,914,395
269,610,768
5,960,777
(16,451,142)
3,114,234
(505,623)
8,676,771
(378,180)
270,027,605
19
BOSTON WATER AND SEWER COMMISSION
Notes to Financial Statennents
Years ended December 3 1 , 2008 and 2007
The EnablingAct 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 $60,147
and $80,754 for the years ended December 3 1 , 2008
and 2007, 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 Some adjustments
are made on a post-billing basis that reduce the amount
of total billings. The total customer bills outstanding as
of December 3 1 , 2008 and 2007, respectively were
$23,797,807 and $2 1 ,439,83 I .These net billing amounts
are reduced by an allowance for uncollectible accounts
of $2,839,652 in 2008 and 2007, respectively to arrive
at the net accounts receivable.
(B) INVESTMENTS
Investments are stated at fair value. Fair value is
determined based on quoted market prices.
(C) CAPITAL ASSETS
Capital assets are 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 over $500
are capitalized and depreciated over their estimated
useful lives.
The Commission capitalizes interest costs during
construction of assets for its own use. No interest
was capitalized in 2008 or 2007 because the amount
calculated was not material.
(D) COMPENSATED ABSENCES
Various employees of the Commission accumulate
unused sick time (subject to certain limitations) to
be used at a later date or a percentage paid in cash
upon voluntary resignation and/or retirement from the
Commission (subject to Commission policies and/or
bargaining agreements). The liability for vacation leave is
based on the amount earned but not used; for sick leave,
it is based on a percentage of the amount accumulated
at the statement of net assets dates.The liability for both
amounts is calculated based on the pay or salary rates in
effect at the statements of net assets dates.
(E) DEPRECIATION
The Commission provides for depreciation using the
straight-line method. Estimated useful lives used in
computing depreciation are as follows:
Years
Water:
Works
Meters
Hydrants
Sewerage:
Works
Pumping station
Buildings
Other
100
10
40
75
35
40
4-14
(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.
20
200S
ANNUAL REPORT
(H) BUSINESS-TYPE 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, 1 989, except those that conflict
with or contradict GASB pronouncements.
Business-type activity funds distinguish operating
revenues and expenses from non operating items.
Operating revenues and expenses result from providing
services in connection with ongoing operations. All
revenues and expenses not meeting this definition are
reported as non operating revenues and expenses
(I) USE OF ESTIMATES
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets
and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from
those estimates.
(K) IMPLEMENTATION OF NEW
ACCOUNTING STANDARDS
GASB Statement No. 49, Accounting and Financial
Reportingby Employers forPollution Remediation Obligations,
requires governments to reasonably determine potential
polluted sites and guidance to recognize Pollution
Remediation Obligations (PRO) components as liability
Governments with revenues greater than $100 million
are required to implement this standard for financial
statement periods beginning after December 1 5, 2007.
The Commission implemented this standard in the
current year See footnote 1 5.
(2) DEFERRED CHARGES
AND CREDITS
As discussed in note I , the application of SPAS No. 7 1
results in certain revenues and expenses being removed
from the statements of operations and reflected in the
statements of net assets as deferred charges or deferred
credits. The revenues and expenses that have been
removed from the statements of operations and added
to the statements of net assets 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:
(J) APPLICATION OF RECENT
ACCOUNTING STANDARDS
GASB Statement No. 45, Accounting and Financial
Reporting by Employers for Postemployment Benefits
Other Than Pensions, requires governments to recognize
other post-employment benefits (OPEB) when earned
rather than on a pay-as-you-go basis. Governments
with revenues greater than $ 1 00 million are required to
implement this standard for financial statement periods
beginning after December 15, 2006. The Commission
implemented this standard in 2007. See footnote 9.
21
2008
2007
C ontributions to reserves
Principal payments on long-term debt
Interest paid from escrow funds
Capital expenditures
Depreciation and amortization
Investmart income on project and escrow funds
Other
$ 5,960,777
21,849,309
(505,624)
8,676,771
(14,712,486)
1,943,266
560,161
$ 23,772,174
3,971,000
19,969,755
(560,543)
13,853,358
(17,401,895)
4,905,018
626,083
25362,776
The activity in and components of deferred charges included in the accompanying statements of net assets
are as follows:
December 31, Increase December 31, Increase December 31,
2006 (decrease) 2007 (decrease) 2008
Deferred loss on land taking
Accrued pension expense
Debt extinguishment expense
Total deferred
charges
5,084,533
9,876,196
3,037,079
$ 17,997,g
(221,067) 4,863,466
(898,465) 8,977,731
(260,699) 2,776,380
(221,067) 4,642,399
(938,339) 8,039,392
(260,699) 2,515,681
(1,380,231) 16,617,577 (1,420,105) 15,197,472
The activity in and components of deferred credits and reserves included in the accompanying statements
of net assets are as follows:
Debt service
Capital improvements
Working capital
Self-insurance
Reduction of future rates
Total deferred
credits and
reserves
December 31,
Increase
December 31,
Increase
December 31,
2006
(decrease)
3,971,000
21,391,776
2007
(decrease)
5,960,778
17,811,414
2008
; 127,864,824
260,009,316
11,634,106
2,240,000
131,835,824
281,401,092
11,634,106
2,240,000
427,111,022
137,796,602
299,212,506
11.634,106
2,240,000
401,748,246
25,362,776
23,772,192
450,883,214
134,108
(53,354)
80,754
(20,607)
60,147
; 401,882,354
25,309,422
427,191,776
23,751,585
450,943,361
(3) CAPITAL ASSETS
The cost and activity of water and sewerage capital assets in service and related accumulated depreciation at
December 3 1 , 2008 and 2007 are as follows:
22
200S
ANNUAL REPORT
Capital assets, not being depreciated:
Land
Construction in progress
Total capital assets
not being depreciated
Capital assets, being depreciated:
Buildings and improvements
Machinery and equipment
Infrastructure
Total capital assets
being depreciated
Less accumulated depreciation for:
Buildings and improvements
Machinery and equipment
Infrastructure
Total accumulated
depreciation
Total capital assets being
depreciated, net
Capital assets, net
Balance at
December 31,
2007
Increases
Decreases
Balance at
December 31,
2008
5,884,243
206,012,324
211,896,567
66,502,512
28,787,585
817,837,706
73,041,917
73,041,917
212,594
723,781
84,178,878
85,115,253
1,910,327
1,427,476
13,357,228
16,695,031
68,420,222
141,462,139
(84,930,432)
(84,930,432)
5,884,243
194,123,809
200,008,052
66,715,106
29,511,366
902,016,584
913,127,803
998,243,056
11,780,432
23,108,922
167,735,665
—
13,690,759
24,536,398
181,092,893
202,625,019
219,320,050
710,502,784
778,923,006
; 922,399,351
(84,930,432)
978,931,058
Balance at
December 31,
2006
Increases
Decreases
Balance at
December 31,
2007
$ 5,884,243
202,888,094
208,772,337
66,502,512
27,481,908
755,165,027
65,328,506
65,328,506
1,305,677
62,672,679
63,978,356
2,286,876
1,592,644
13,341,698
17,221,218
(62,204,276)
(62,204,276)
5,884,243
206,012,324
211,896,567
66,502,512
28,787,585
817,837,706
849,149,447
913,127,803
9,493,556
21,516,278
154,393,967
—
11,780,432
23,108,922
167,735,665
185,403,801
202,625,019
663,745,646
46,757,138
112,085,644
710,502,784
$ 872,517,983
(62,204,276)
922,399,351
Capital assets, not being depreciated:
Land
Construction in progress
Total capital assets
not being depreciated
Capital assets, being depreciated:
Buildings and improvements
Machinery and equipment
Infrastructure
Total capital assets
being depreciated
Less accumulated depreciation for:
Buildings and improvements
Machinery and equipment
Infrastructure
Total accumulated
depreciation
Total capital assets being
depreciated, net
Capital assets, net
23
During 1 999, the Boston Redevelopment Authority (BPA)
took land owned by the Commission through eminent
domain. The book value of the land, at the time of the
taking, was $7,598,7 1 0. A portion of this loss, $6,632,000,
of which $4,642,399 and $4,863,466 remain unamortized
at December 3 1 ,2008 and 2007, respectively was included
in deferred charges in the accompanying statements of net
assets as that amount will be recovered through future
rates.The Commission was paid no compensation for the
land and does not expect to receive any consideration
from BRA in the future.
(4) LONG-TERM OBLIGATIONS
The Commission issues revenue bonds to support
various projects.
The following is a summary of revenue bond activity for
the years ended December 3 1 , 2008 and 2007 (amounts
in thousands).
Description
Revenue bonds:
1992 Series A, bearing an
interest rate of 5.75%,
with maturity dates
ranging from November 1,
2008 to 2013
1993 Series A, bearing interest
rates ranging from 5.125% to
5.25% with maturity dates
ranging from November 1,
2012 to 2019
1994 Series A, bearing a variable
interest rate, with maturity
dates rangmg from
November 1,2008 to 2024
1998 Series A, bearing interest
rates ranging from 5.0% to
5.125% with maturity dates
ranging from
November 1,2014 to 2015
1998 Series C, bearing an
interest rate of 5.2%,
with maturity dates ranging
from November 1 ,
2008 to 2021
1998 Series D, bearing interest
rates ranging from 4.75% to
5.0% with maturity dates
ranging from November 1 ,
2008 to 2028
2003 Series A, bearing interest
rates ranging from 3.125% to
4.0% with maturity dates
ranging from November 1,
2008 to 2011
2004 Series A, bearing interest
rates ranging from 3.5% to
5.0% with maturity dates
ranging from November 1,
2008 to 2025
Plus (less):
Unamortized loss on
refunding
Unamortized issue premium
Net revenue bonds
Balance at
Balance at
Amounts
December 31,
December 31,
due within
2007
Additions
Reductions
2008
one year
$ 30,810
46,735
30,700
109,030
50,685
307,345
(2,254)
635
4,445 26,365
46,735
1,000 29,700
$ 305,726
12,960
11,200
3,130 105,900
3,690
550 50,135
12,825 294,520
(588) (1,666)
74 561
3,280
190
12,311 293,415
24
200S
ANNUAL REPORT
Description
Revenue bonds:
1992 Series A, bearing interest
rates ranging from 6. 1% to
5.75% with maturity dates
ranging fi-om November 1 ,
2008 to 2013
1993 Series A, bearing interest
rates ranging from 5. 125% to
5.25% with maturity dates
ranging from November 1,
2012 to 2019
1994 Series A, bearing a variable
interest rate, with maturity
date ranging from
November 1,2008 to 2024
1998 Series A, bearing interest
rates ranging from 5.0% to
5. 125% 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
2008 to 2021
1998 Series D, bearing interest
rates ranging from 4.625% to
5.0% with maturity dates
ranging from November 1 ,
2008 to 2028
2002 Series A, bearing an
interest rate of 3.0%,
with a maturity date
of November 1,2007
2003 Series A, bearing interest
rates ranging from 2.5% to
4.0% with maturity dates
ranging from November 1,
2008 to 2011
2004 Series A, bearing interest
rates ranging from 3.0% to
5.0% with maturity dates
ranging from November 1,
2008 to 2025
Balance at
December 31,
2006
Balance at
December 31,
2007
Amounts
due within
one year
4,445
46,735
4,000
51,455
50,685
Plus (less):
Unamortized loss on
refunding
Unamortized issue premium
Net revenue bonds
(3,013)
748
(759)
113
(2,254)
635
11,709
12,825
25
Annual sinking fund requirennents and debt principal and interest maturities for all future years as of December 3 I
2008 are as follows (amounts in thousands):
2009
2010
2011
2012
2013
2014-2018
2019-2023
2024 - 2028
Revenue bonds
Principal
Interest
13,430
15,020
14,080
14,368
14,775
13,669
15,530
12,917
16,365
12,077
84,600
47,242
85,935
24,755
49,805
6,163
294,520
146,211
(A) PRIOR YEAR DEBT REFUNDING
In the aggregate, $ 1 33,850,000 remains outstanding at December 3 1 , 2008, on the bond issues that were defeased
"in-substance" during prior years.
(B) RESTRICTED CASH AND INVESTMENTS
The Commission has established both trusteed and nontrusteed funds with investments, principally short-term
securities, which are restricted for payment of specified liabilities, capital projects, or other costs of operations.The
components of the trusteed and nontrusteed investments at December 3 1 , 2008 and 2007 are as follows:
Trusteed:
U.S. government obligations
Other government agency obligations
Institutional money market investment funds
Cash
Repurchase agreements
Nontrusteed:
U.S. government obligations
Other government agency obligations
Institutional money market investment funds
Cash
Restricted cash and investmoits
Less trusteed and nontrusteed cash
Trusteed and nontrusteed investments
2008
11,972,219
64,570,605
73,237,924
573,029
11,746,250
162,100,027
48,805
19,751,672
3,555,379
23,355,856
185,455,883
(4,128,408)
$ 181,327,475
2007
699,889
141374,448
2,465,286
1,419,252
11,746,250
157,705,125
85,745
6,031,153
16,769,396
9,104,046
31,990,340
189,695,465
(10,523,299)
179,172,166
The Commission's bond resolution requires certain
accounts to maintain a minimum balance at all times.The
resolution allows the Commission to utilize surety bonds
where the issuer maintains a minimum credit rating of
an "AA" or equivalent towards the minimum balance in
the senior debt service reserve account. During 2008,
the surety bond provider was downgraded to below
an "AA" or equivalent. In response to the downgrade,
with Board approval, the Commission transferred cash
to the senior debt service reserve account to fund the
26
200S
ANNUAL REPORT
difference. The bond resolution is silent on the annount
of time to fund a reserve shortfall, however; it does
define an event of default as any violation of the bond
resolution that is not resolved in 30 days or; if that period
is not adequate, as expeditiously as possible in whatever
reasonable period of time is required. The Commission
funded the shortfall within 42 calendar days.
(C) 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. For purposes of offsetting principal and
interest payments, an amount aggregating approximately
$6,635,000 as of December 31, 2008, consisting of
contract assistance payments from the Commonwealth
of Massachusetts and other interest subsidies from
MWPAT, will be recognized as capital grants over the
remaining term of the loans.
The scheduled loan payments for all MWPAT
obligations and related subsidies are shown below as of
December 3 1 , 2008 (amounts in thousands):
Contract
Equity
assistance
Principal
$ 1,825
Interest
623
Total
earnings
309
payments
815
Total
1,124
Principal
1,186
Interest
145
Total
2009
2,448
1,331
2010
1,894
543
2,437
271
801
1,072
1,235
125
1,360
2011
1,971
459
2,430
230
801
1,031
1,290
103
1,393
2012
2,057
372
2,429
188
804
992
1,354
80
1,434
2013-2017
6,485
$ 14,232
660
2,657
7,145
16,889
346
1,344
2,070
5,291
2,416
6,635
4,595
9,660
98
4,693
551
10,211
The Commission has entered into various interest-free
loan agreements with the MWRA. Under these
agreements, the Commission is required to repay these
loans in annual installments as part of the MWRA's
Infiltration/Inflow Local Financial Assistance program (I/I),
Local Water Infrastructure Rehabilitation Program (WIR)
and Pipeline Assistance Program (PAP). These programs
are designed to assist service area communities with
sewer system rehabilitation.
The following is a summary of long-term note activities
for the years ended December 3 1 , 2008 and 2007.
Description
MWRA 1/1 Program Phase 111,
interest free, due
August 15,2010
MWRA I/I Program Phase IV,
interest free, due
February 15,2012
MWRA I/I Program Phase V,
interest free, due
August 15, 2013
MWRA P.A.P. Program,
interest free due
November 15,2018
MWPAT Pool I, subsidized
interest, due August 1, 2013
MWPAT Pool II, subsidized
interest, due August 1, 2015
MWPAT Pool III, subsidized
interest, due
February 1,2017
Total long-term
notes
Balance at
December 31,
2007 Additions
$ 1,720,810
6,035,588
2,968,351
6,915,974
Balance at Amounts
December 31, due within
Reductions 2008 one year
881,806
839,004
1,632,400
1,952,817 4,082,771
593,670 4,007,081
561,101
1,252,499
920,150
28,223,582 5,892,625 4,466,293 29,649,914 5,055,556
4,510,467 — 678,894 3,831,573 706,305
4,555,324 — 464,301 4,091,023 492,740
606,435 6,309,539 626,348
54,930,096 7,525,025 9,644,216 52,810,905 9,614,699
27
Description
Balance at
December 31,
2006 Additions
MWRA I/I Program Phase III,
interest free, due
August 15,2010
MWRA I/I Program Phase IV,
interest free, due
February 15,2012
MWRA I/I Program Phase V,
interest free, due
November 15, 2012
MWRA P.A.P. Program,
interest free due
November 15,2017
MWPAT Pool I, subsidized
interest, due August 1, 2013
MWPAT Pool II, subsidized
interest, due August 1 , 20 1 5
MWPAT Pool III, subsidized
interest, due
February 1, 2017
2,602,616
Balance at Amounts
December 31, due within
Reductions 2007 one year
881,806
1,720,810
4,345,436 3,035,807 1,345,655 6,035,588
2,968,351
2,968,351
881,806
1,952,817
593,670
30,970,575 1,563,000 4,309,993 28,223,582 4,466,293
5,164,611 — 654,144 4,510,467 678,894
4,992,828 — 437,504 4,555,324 464,301
7,502,391
586,417 6,915,974
606,435
Total long-term
notes
55,578,457 7,567,158 8,215,519 54,930,096 9,644,216
(5) SHORT-TERM OBLIGATIONS
During fiscal year 2006, the Commission instituted a commercial paper program for the purpose of financing capital
expenditures.The following represents the Commission's commercial paper outstanding as of December 3 1 , 2008
and 2007:
Description
Commercial paper notes:
Cabrera Capital program
due July 3, 2008
through January 20, 2009
Bank of America program
due August 6, 2008
through February 4, 2009
Total short-term notes
Balance at
December 31,
2007
$ 15,000,000
31,600,000
$ 46,600,000
Additions
25,000,000
300,000
25,300,000
Balance at
December 31,
Reductions 2008
40,000,000
31,900,000
71,900,000
Description
Commercial paper notes:
Cabrera Capital program
due March 7, 2008
Lehman Brothers program
due February 13,2008
through August 6, 2008
Total short-term notes
Balance at
December 31,
2006
$ 5,000,000
20,000,000
$ 25,000,000
Additions
25,000,000
127,800,000
152,800,000
Balance at
December 31,
Reductions 2007
15,000,000
116,200,000
131,200,000
15,000,000
31,600,000
46,600,000
Subsequent to year-end, on March 23, 2009, the Commission issued $148,665,000 of general revenue bonds to
refinance $71,900,000 of commercial paper due by April 9, 2009 and, as such, has classified the commercial paper
as a long-term liability in the accompanying financial statements,
28
200S
ANNUAL REPOR-
(6) MASSACHUSETTS WATER RESOURCES AUTHORITY
The MWRA provides all the Commission's water supply and sewertreatment requirements and assesses the Commission
for a portion of its actual operating and capital expenses.The assessment is based on the MWRA's fiscal year (July I
to June 30), and payments are due to the Authority in ten equal installments excluding the months of January and July
Amounts included in the statements of operations for assessments by the Authority for 2008 and 2007 are as follows:
Assessments allocated on:
Water usage
Wastewater usage
Total
2008
$ 64,750,699
100,912,502
$ 165,663,201
2007
63,342,139
96,394,712
159,736,851
In 2008 and 2007, over 84% and 82% respectively of water
provided from the Authority was billable to customers.
Since its inception, the Commission has maintained the
percentage of billable water at 78% and is continuing
to take steps to improve the amount of billable waten
including replacement of old and defective meters and
implementation of a comprehensive leak detection and
repair program
(7) TRANSACTIONS WITH THE
CITY OF BOSTON
The Commission's ongoing program to meter City
facilities has resulted in billings to ten City departments
during 2008 and 2007, respectively based on actual
consumption of $5, 1 1 2,876 and $5, 1 89,049.
The City provides services to the Commission, including
paving and facilities rental. Operating costs billed to the
Commission by the City were $423,000 and $405,227
during 2008 and 2007, respectively Capital costs billed
by the City were $ 1 ,469,398 and $2,578,880 during
2008 and 2007, 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 3 I ,
2008 and 2007 both years, the receivables totaling
approximately $150,404 of billings had been included
on property tax bills.
Under the Commission's own tax lien program, accounts
which have unpaid balances over two years old are
transferred into the tax lien program for collection. As of
December 3 1 , 2008 and 2007, $930,93 1 and $846,464,
respectively remains outstanding.
(S) PENSION BENEFITS
The Commission provides retirement benefits to
substantially all of its employees through the State-Boston
Retirement System (SBRS or the System), a cost-sharing
multi-employer retirement plan.
A dispute concerning the Commission's past and future
obligations to all Commission employees covered by
the SBRS was settled in 1 986, resulting in a payment of
$ 1 9, 1 00,000 to the SBRS. This payment was funded
primarily through 1985 and 1986 bond proceeds and
is recorded as a deferred charge that will be recovered
through future rates. As part of the settlement with the
SBRS, the Commission annually reimburses the City
for the Commission's share of pension benefits paid to
Commission employees.The Commission's share is based
upon the proportion of each employee's total years of
creditable service, level of compensation, and group
classification. Employees become 100% vested after
ten years of creditable service as defined by Chapter 32
of the Massachusetts General Laws (MGL).
(A) DESCRIPTION OF THE SBRS
PLAN
The SBRS is a cost-sharing multi-employer public employee
retirement system established under Chapter 32 of the
MGL and is a member of the Massachusetts Contributory
Retirement System. The 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. The
System issues a publicly available financial report which can
29
be obtained through the Commonwealth of Massachusetts,
Public Employee Retirement Administration Commission
(PERAC), One Ashburton Place, Boston, Massachusetts
02108.
(B) FUNDING POLICY
Plan members are required to contribute to the SBRS
at rates ranging from 5% to I 1% 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 1 998, the Commonwealth
of Massachusetts reimbursed the SBRS for a portion of
benefit payments for cost-of-living increases. Beginning
July 1 , 1 998, 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 MGLThe Commission's contributions to the System
for the years ended December 3 1 , 2008, 2007 and 2006
were approximately $549,897, $528,649 and $50 1 ,3 M ,
respectively which equaled its required contribution each
year Total employee contributions, based on actuarially
determined amounts, were approximately $2,468,906,
$2,352,56 1 and $2,2 1 4,840, or 8.9% of covered payroll in
2008, 2007 and 2006, respectively
(C) THE COMMISSION'S TRUST
FUND
On a quarterly basis, the Commission deposits an amount
into aTrust Fund, the assets of which are used to reimburse
the SBRS for amounts paid on behalf of the Commission.
As required by the Commission's Enabling Act, employee
pension contributions are transferred to the SBRS directly
and are either returned to employees upon termination
on for vested employees, are used to defray a portion of
the total retirement benefit. The Commission's policy is
to make employer contributions to the Trust Fund based
upon the actuarially determined cost of future benefits,
net of employee contributions.
Trust Fund assets at December 3 1 , 2008 and 2007 are as
follows:
2008
Assets (at fair value):
Common stock
Intemational stock
Fixed income
Equity funds
Fixed income funds
Total
$ 19,853,511
7,855,850
12,098,051
9,435,568
8,629,651
$ 57,872,631
2007
35,519,458
14,235,538
28,449,049
78,204,045
The Trust Fund activity is as follows:
Assets (at fair value), December 3 1 , 2006
Employer contributions
Investment income and gains
Management fees
Payments to SBRS
Assets (at fair value), December 31, 2007
Employer contributions
Investment income and losses
Management fees
Payments to SBRS
Assets (at fair value), December 31, 2008
$ 80,118,054
528,649
3,888,098
(296,980)
(6,033,776)
78,204,045
549,897
(20,177,278)
(162,536)
(541,497)
$ 57,872,631
The investment portfolio is regulated by the MGL, Chapter 32, Section 23. The investments are managed by
independent investment advisors. Bank of America is the custodian of the portfolio. The Trust Fund assets will be
used by the Commission to reimburse SBRS in future years for required employer contributions.
30
200S
ANNUAL REPORT
(9) POST-EMPLOYMENT
BENEFITS OTHER THAN
PENSIONS
GASB Statement No. 45, /Accounting and Financial
Reporting by Employers for Post-ennployment Benefits
Other Than Pensions, is required to be implemented
by governments with annual revenues greater than
$100 million for financial statement periods beginning
after December 15, 2006. Statement No. 45 requires
governments to account for other post-employment
benefits, primarily healthcare, on an accrual basis
rather than on a pay-as-you-go basis. The effect is
the recognition of an actuarially required contribution
as an expense when a future retiree earns their
postemployment benefit ratherthan when they use their
postemployment benefit. To the extent that an entity
does not fund their actuarially required contribution,
a post-employment benefit liability is recognized over
time.
In addition to offering pension benefits to their retirees,
the Commission also offers other post-employment
benefits (OPEB) upon retirement.
The Commission participates in the City of Boston's
health insurance program, which is administered by
the City of Boston as an agent multiple-employer
defined benefit OPEB plan. The OPEB plan does not
issue a stand-alone financial report. Participation in the
City's plan was made via an agreement between the
City and the Commission and may be amended with
the agreement of both parties. The Commission also
offers its retirees disability and life insurance, which
are established and amended via collective bargaining
agreements and the Policy Governing Executive
Employees.
Medical and prescription drug benefits are provided
to all eligible retirees not enrolled in Medicare through
a variety of plans offered by Blue Cross Blue Shield
of Massachusetts, Harvard Pilgrim HealthCare, and
Neighborhood Health Plan. Medical and prescription
drug benefits are provided to retirees enrolled
in Medicare through supplemental and Medicare
Advantage plans offered by Blue Cross Blue Shield of
Massachusetts, Harvard Pilgrim HealthCare, and Tufts
Health Plan. The Commission also pays 50% of the
retiree life insurance premium and reimburses retirees
50% of their Medicare Part B premium.
Groups I and 2 retirees with at least 1 0 years or 20 years
of creditable service are eligible at age 55 or any age,
respectively Retirees on ordinary or accidental disability
retirement are eligible at any age while ordinary disability
retirement requires 10 years of creditable service. The
surviving spouse is eligible to receive both pre- and
post- retirement death benefits, as well as medical and
prescription drug coverage.
(A) FUNDING POLICY
Employer and employee contribution rates are governed
by the collective bargaining agreements and the Policy
Governing Executive Employees. Prior to January I ,
2008, the City of Boston paid for the Commission's
retirees' health benefits. Subsequent to January 1 , 2008,
the Commission will be responsible for the payment
of their retirees' health benefits. The Commission
currently funds the plan on a pay-as-you-go basis. The
Commission and plan members share the cost of health
insurance. As of June 30, 2007, the valuation date, the
plan members contribute 10% to 25% of the monthly
premium cost, depending on the plan in which they are
enrolled. The Commission contributes the balance of
the premium cost.
(B) ANNUAL OPEB COST AND NET
OPEB OBLIGATION
The Commission's annual OPEB expense is calculated
based on the annual required contribution of the
employer (ARC), an amount actuarially determined in
accordance with the parameters of GASB Statement
No. 45.The ARC represents a level of funding that, if paid
on an ongoing basis, is projected to cover the normal
cost each year and amortize any unfunded actuarial
liability over a period of thirty years.The following table
shows the components of the Commission's annual
31
OPEB cost for the year ending December 3 1 , 2008, the amount actually contributed to the plan, and the change in
the Commission's net OPEB obligation based on an actuarial valuation as of June 30, 2007:
Annual Required Contribution (ARC)
Interest on net OPEB obligation
Adjustment to ARC
Annual OPEB cost
Contributions made
Change in net OPEB obligation
Net OPEB obligation - beginning of year
Net OPEB obligation - end of year
$ 9,250,389
269,420
(204,012)
9,315,797
9,315,797
5,987,121
$ 15,302,918
The Commission's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation were as follows:
Fiscal year ended
2008
2007
Annual
OPEB cost
9,315,797
5,987,121
Percentage
of OPEB cost
contributed
— %
Net OPEB
obligation
9,315,797
5,987,121
The Commission's net OPEB obligation as of December 3 1 , 2008 is recorded as a component of the "Other Long-term
Liability" line item.
(C) FUNDED STATUS AND FUNDING PROGRESS
The funded status of the plan as of December 3 1 , 2008, based on an actuarial valuation as of June 30, 2007,
was as follows:
Actuarially accrued liability (AAL)
Actuarial value of plan assets
Unfunded actuarial accrued liability (UAAL)
Funded ratio (actuarial value of plan assets/ AAL)
Covered payroll (active plan members)
UAAL as a percentage of covered payroll
$ 135,023,636
$ 135,023,636
— %
$ 23,691,142
569.93%
Actuarial valuations of an ongoing plan involve estimates
of the value of reported amounts and assumptions
about the probability of occurrence of events far into
the future. Examples include assumptions about future
employment, mortality and the healthcare cost trend.
Amounts determined regarding the funded status of
the plan and the annual required contributions of the
Commission are subject to continual revision as actual
results are compared with past expectations and new
estimates are made about the future. The schedule of
funding progress, presented as required supplementary
information following the notes to the financial
statements, presents multi-year trend information
that shows whether the actuarial value of plan assets
is increasing or decreasing over time relative to the
actuarial accrued liabilities for benefits.
32 Continued
200S
ANNUAL REPORT
(D) ACTUARIAL METHODS AND
ASSUMPTIONS
Projections of benefits for financial reporting purposes
are based on the substantive plan (the plan as understood
by the Commission and plan members) and include
the types of benefits provided at the time of each
valuation and the historical pattern of sharing of benefit
costs between the Commission and plan members
to that point. The actuarial methods and assumptions
used include techniques that are designed to reduce
short-term volatility in actuarial accrued liabilities and the
actuarial value of assets, consistent with the long-term
perspective of the calculations.
In the June 30, 2007 actuarial valuation, the projected unit
credit cost method was used. The actuarial assumptions
included a 4.5% investment rate of return and an
annual health care cost trend rate of 1 0% - I I % initially
reduced by decrements to an ultimate rate of 5% after
5 -7 years. The health care cost trend rate differs between
the master medical, master medical prescription drug,
and other healthcare plans.The actuarial value of assets
was determined using the market value of investments.
The Commission's unfunded actuarial accrued liability is
being amortized as a level percentage of pay on a closed
basis. The remaining amortization period at January I ,
2007 was thirty years.
(lO) DEPOSIT AND
INVESTMENT RISKS
The following represents the Commission's essential
risk information about deposits and investments for the
years ended December 3 1 , 2008 and 2007.
(A) CUSTODIAL CREDIT RISK
Custodial credit risk is the risk that in the event of bank
failure, the Commission's deposits may not be returned.
The Commission carries deposits that are fully insured
by FDIC insurance or collateralized with securities
held by the Commission or the Commission's agent in
the Commission's name. The Commission also carries
deposits that are not collateralized and are uninsured.The
Commission does not have a formal policy for managing
custodial credit risk of deposits. As of December 3 I ,
2008 and 2007, the bank balances of uninsured
and uncollateralized deposits totaled approximately
$ 1 0,6 1 9, 1 79 and $8, 1 65,73 I , respectively
Further; all of the Commission's investments are held by
a third-party in the name of the Commission.
(B) INVESTMENT POLICY
Investment of Commission funds is governed by federal
and state law and is restricted to permitted investments
as defined by the Commission's General Revenue Bond
Resolution and Supplemental Resolutions. Revenues
generated from the investment of Commission funds
reduce the amount the Commission must charge
to its customers, while any investment losses would
negatively affect the Commission's general rates and
charges. Consequently the Commission shall at all times
maintain a fully invested, diversified portfolio with the
objective of achieving the highest yield that is attainable
in conjunction with a very low risk of loss of capital.
The basic criteria that will be used in making investment
decisions include the evaluation of risk/reward tradeoffs,
historical price spreads between different securities, the
slope of the yield curve and the anticipated cash flows of
the different investment accounts of the Commission.
Current permitted Investments under the General
Revenue Bond Resolution include:
1 . Any bond or other obligation to which principal
and interest are unconditionally guaranteed by
the United States of America.
2. Any bond or other obligation of any state, agency
or local government unit of any state which are:
A. noncallable
B. fully collateralized by fund consisting of cash,
bonds or obligations of one of the above.
3. Public Housing bonds which are secured by the
United States of America, certain notes issued
by public agencies or municipalities fully secured
by the United States of America or obligations
issued by State or public agencies or municipalities
carrying the highest bond rating.
33
4. Obligations of any state to which the full faith
and credit of the state is pledged and are within
the two highest bond ratings.
5. Prime Commercial Paper rated A - I or P - I .
6. Shares of a money market fund which is open
ended and rated A or better or a money market
fund of banks meeting certain criteria.
7. Certificates of Deposits issued by FDIC banks
which are fully secured by obligations described
in I or 2 above.
8. Repurchase Agreements fully collateralized by
obligations described in I or 2 above.
9. Futures contracts traded on exchange for 1 , 2, 3,
and 4 above.
A single investment can not be more than $15 million
and can only be purchased once. Further all investments
of the Commission are held in the Commission's name
by third-party
(C) INTEREST RATE RISK
The following is a listing of the Commission's fixed income investments and related maturity schedule (in years) as
of December 3 1 , 2008 and 2007:
2008
Investment type
U.S. government and agency
obligations
Repurchase agreements
Institutional money market
investment funds
Investment type
U.S. government and agency
obligations
Repurchase agreements
Institutional money market
investment funds
Fair value
Less
than 1
1-5
6-10
More
than 10
$
76,591,629
11,746,250
92,989,596
181,327,475
Fair value
148,191,235
11,746,250
19,234,681
179,172,166
1,786
92,989,596
92,991,382
14,095,937
6,790,182
55,703,724
11,746,250
$.
14,095,937
2007
6,790,182
67,449,974
Less
than 1
1-5
6-10
More
than 10
$
56,492,884
19,234,681
75,727,565
26,265,049
54,636,142
10,797,160
11,746,250
$_
26,265,049
54,636,142
22,543,410
The Commission's guidelines do not specifically address limits on maturities as a means of managing its exposure to
fair value losses arising from increasing interest rates,
(D) CREDIT RISK
The Commission's fixed income investments as of December 3 1 , 2008 and 2007 were rated by Standard and Poor's
and/or an equivalent national rating organization and the ratings are presented below using the Standard and Poor's
rating scale;
34
200S
ANNUAL REPOI
2008
Investment type
U.S. government and agency
obligations
Repurchase agreements
Institutional money market
investment funds
Fair value
$ 64,570,602
11,746,250
92,989,596
$ 169,306,448
AAA
55,391,744
92,989,596
148,381,340
AA
Not rated
9,178,858
11,746,250
20,925,108
2007
Investment type
U.S. government and agency
obligations
Repurchase agreements
Institutional money market
investment funds
Fair value
$ 147,405,596
11,746,250
19,234,681
$ 178,386,527
AAA
AA
147,405,596
19,234,681
166,640,277
Not rated
11,746,250
11,746,250
As of December 31, 2008 and 2007, the Commission had $12,021,027 and $785,639 of investments that are
explicitly guaranteed by the U.S. government that are not included in the above schedules, respectively.
(E) CONCENTRATION RISK
The Commission has two investments, at fair value,
that exceed 5% of the Commission's investments as
of December 3 1 , 2008 and 2007. Each investment
approximates $1 I million and is invested in
U.S. government agency obligations.
(11) LEASE COMMITMENTS
The Commission leases office space and equipment
under various leases that have been accounted for as
operating leases. The payments received under these
leases are not material.
Rent expense under operating leases amounted to
$ I 1 4,760 and $ 1 04,362 in 2008 and 2007, respectively
(12) COMMITMENTS
The 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 infrastructure. Commitments under
these contracts aggregate approximately $71.8 million
as of December 3 1 , 2008. Capital improvements,
primarily related to enhance the operation of the water
and sewer system projects including controlling future
pollution to Boston Harbor and neighboring waterways,
are expected to aggregate approximately $ 1 40.2 million
for 2009 through 2010. Of this amount, approximately
$1 19.3 million represents extension and improvement
projects and $20.9 million represents renewal and
replacement projects. The extension and improvement
projects will be 18% funded by federal, state and
Massachusetts Water Resources Authority grants and
loans. The remaining amounts will be funded from the
Commission's commercial papen bond proceeds and
operating revenues.
(13) 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 $750,000 per claim and
is supplemented with $25 million in excess coverage
purchased through an outside carrier For general liability,
the Commission's self-insured limits are $1 million per
occurrence, $2.5 million aggregate, and is subordinate to
35
$10 million of excess coverage purchased through an outside carrier Under the sections of the Model Water and
Sewer Act, the Comnnission's tort liability is capped at $100,000 per claimant.
The Commission maintains other insurance coverage as follows:
Policy type
Coverage
Vehicles
Property
Public officials
Fiduciary
Crime
Combined single limit of $1 million/accident,
there is a $100,000/occurrence deductible for bodily injury
and property damage.
Aggregate limit of $120.8 million on Harrison Ave
with other sublimits at other BWSC facilities.
Coverage of $3 million; $100,000 self-insurance retention
$5.0 million coverage; with $10,000 deductible per claim.
Employee dishonesty coverage of $5 million
Insurance claims for all policies have not exceeded coverage by a material amount in the past three years.
The Commission participates in the City's health benefits
plans for which the City assesses monthly premiums to
the Commission based on current enrollments.
Liabilities for self-insured claims are reported if it
is probable that a loss has been incurred and the
amount can be reasonably estimated. The Commission
has established a liability 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 Commission is
involved. Unemployment claims paid during 2008 and
2007 were immaterial.
Changes for the years ended December 3 1 , 2008 and 2007 are as follows:
Beginning balance of reserves
Payment of claims attributable to events of both current
and prior years:
Workers' compensation
General liability
hicurred claims
Ending balance of reserves
2008
2,469,311
(454,683)
(36,354)
1,419,041
3,397,315
2007
2,294,914
(267,453)
(156,150)
598,000
2,469,311
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.
(14) 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
36
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, along with MWRA and the
Commonwealth of Massachusetts, is a defendant in The
Federal Boston Harbor Case. Management believes
that the Commission's extensive capital improvement
200S
ANNUAL REPORT
program (see note 12) addresses probable actions
that the Connmission may be required to undertal<e
in connection with this litigation. Additionally, the
Commission is likely to bear, either directly or through
future assessments of the MWRA, a substantial portion
of the financial costs involved. As of December 3 1 ,
2008, the remaining corrective actions relate primarily
to the combined sewer overflow (CSO) requirements
regarding the control of future pollution. Overall costs
for all parties are estimated to be approximately
$8 1 1 .4 million, however; the extent of the Commission's
liability for these costs cannot be determined.
To the extent Boston Harbor litigation concerns an
ongoing capital improvement program which results in a
prevention control measure, the Commission is therefore
not required to report the litigation matter as an
obligating event pursuant to GASB 49 paragraph 4(d) as
of December 3 1 , 2008. The Commission has evaluated
other pollution remediation events and will make a
separate disclosure in footnote 15 for applicable events
and liabilities pursuant to GASB 49.
(15) POLLUTION REMEDIATION
OBLIGATIONS
GASB Statement No. 49, Accounting and Financial
Reporting by Employers for Pollution Remediation Obligations,
requires governments to reasonably determine potential
polluted sites and provides guidance regarding when to
recognize Pollution Remediation Obligations (PRO) as a
liability The Commission determined that the pollution
remediation obligation (PRO) liability as of December 3 I ,
2008 and 2007 as well as the pollution remediation
obligation payments made during 2008 and 2007 were
not material to the Commission's financial statements,
37
SCHEDULE OF FUNDING PROGRESS - OPEB
Required Supplementary Information
December 3 1 , 2008 (Unaudited)
Actuarial
valuation date
$
Actuarial
value of
assets (a)
Actuarial
accrued
liability (b)
85,588,894
135,023,636
Unfunded
(b-a)
Funded ratio
(a/b)
Covered
payroll (c)
23,410,932
23,691,142
((b-a)/c)
6/30/2005
6/30/2007
85,588,894
135,023,636
— % $
365.6%
569.9
See accompanying independent auditors' report.
38
200S
ANNUAL REPOR
BOSTON WATER AND SEWER COMMISSION
Supplemental Schedule of Revenues and Expenses - Rate Basis
Years ended December 3 1 , 2008 and 2007
Schedule!
Revenues:
Water revenue
Sewer revenue
Subtotal
Less:
Adjustments
Discounts
Bad debt
Subtotal
Net billed charges
Prior year surplus
Miscellaneous revenues:
Late charge revenue
hivestment income
Fire pipe revenue
Other income
Total revenues
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
Travel and training
Damage claims
biventory
Capital outlay
Total direct operating expenses
Nonoperating expenses:
MWRA assessment
Capital improvements
Principal payments
biterest expense
Deposits to reserve funds
SDWA assessment
Total nonoperating expenses
Total current expenses
Current year rate surplus
2008
2007
116,091,766
112,633,394
144,823,011
140,286,933
260,914,777
252,920,327
5,659,378
6,329,825
870,252
866,197
42,751
138,479
6,572,381
7,334,501
254,342,396
245,585,826
80,754
134,108
1,177,810
943,257
5,920,276
7,886,944
3,720,058
3,595,899
4,846,460
5,367,899
270,087,754
263,513,933
31,506,257
28,138,771
616,922
613,197
6,904,198
6,603,848
2,479,705
2,283,837
5,284,662
6,582,756
1,304,442
1,067,410
2,708,608
2,691,028
117,981
106,982
1,245,571
1,256,064
704,815
766,680
40,999
53,825
303,336
125,833
22,927
26,304
83,798
94,642
53,324,221
50,411,177
165,663,201
159,736,851
8,592,973
13,758,716
21,849,309
19,969,755
14,408,771
15,345,212
5,960,777
3,971,000
228,353
240,468
216,703,384
213,022,002
270,027,605
263,433,179
60,148
80,754
This supplement schedule presents the Commission's revenues and expenses on the basis that is presented in the
Commission's budget and rate-setting document. See footnote I in the notes to the basic financial statement for the
differences between this supplemental schedule and GAAP
See accompanying independent auditors' report.
39
ANNUAL REPORT
2008
boston water and
Sewer Commission
BOSTON WATER AND SEWER COMMISSION
980 HARRISON AVENUE
BOSTON, MA 02119
WWW.BWSC.ORG