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Full text of "Annual report"

BOSTON PUBLIC LIBRARY 




ANNUAL REPORT 



boston water and 
Sewer Commission 




■^jni^-i*.^/t- 




„ ..^.^ . , 



Safeguarding VouR Investment in Boston's Future 





Digitized by the Internet Archive 

in 2010 with funding from 

Boston Public Library 



http://www.archive.org/details/annualreport2008bostsew 



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 



200S 



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 

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 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