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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 0 

Deferred  credits  and  reserves  (note  2)  450,943,361  427,191,776 

Total  noncurrent  liabilities  864,724,815  773,006,471 

Total  liabilities  908,337,272  865,882,628 

NET  ASSETS 

Net  assets: 

Invested  in  capital  assets,  net  of  related  debt  574,222,454  533,177,676 

Restricted  for  debt  service  46,597,362  38,722,718 

Restricted  for  capital  assets  —  699,800 

Restricted  for  debt  covenants  46,027,895  45,312,437 

Unrestricted  net  deficit  (349,252,168)  (314,727,366 

Commitments  and  contingencies  (notes  11,  12,  13  and  14) 

Total  net  assets  $      317,595,543  303,185,265 

16    See  accompanying  notes  to  financial  statements 


200S 


ANNUAL  REPORT 


BOSTON  WATER  AND  SEWER  COMMISSION 

Statements  of  Operations 

Years  ended  December  3  1 ,  2008  and  2007 


2008  2007 


Operating  revenues: 

Water  and  sewer  usage  (note  7)                                                                             $      260,914,777  252,920,327 

Fire  pipe  3,720,058  3,595,899 

Other  (note  1)  4,846,460  5,367,899 

Total  operating  revenues  269,481,295  261,884,125 

Operating  expenses: 

Operations  64,075,096  53,882,665 

Maintenance  5,284,662  6,582,756 

MWRA  assessment  (note  6)  165,663,201  159,736,851 

Depreciation  and  amortization  19,673,414  18,776,772 

Total  operating  expenses  254,696,373  238,979,044 

Excess  operating  revenues  14,784,922  22,905,081 

Nonoperating  revenue  (expense): 

Investment  income  9,041,352  13,735,219 

Interest  expense  (14,914,395)  (19,188,062) 

Total  nonoperating  net  expense  (5,873,043)  (5,452,843) 

Excess  revenues  before  capital  grants  and 

contributions  and  transfer  requirements  8,911,879  17,452,238 

Capital  grants  and  contributions  29,249,966  21,453,580 

Excess  revenues  before  transfer  requirements  38, 1 6 1 ,845  38,905,8 1 8 

Excess  revenues  used  to  fund  reserves  and  other  deferrals  (note  2)  (23,772,174)  (25,362,776) 

Change  in  accumulated  revenues  used  to  offset  future  rates  (note  2)  20,606         53,354 

Change  in  net  assets  14,410,278  13,596,396 

Net  assets,  beginning  of  year  303,185,265  289,588,869 

Net  assets,  end  of  year                                                                                                $      317,595,543  303,185,265 


See  accompanying  notes  to  financial  statements    17 


BOSTON  WATER  AND  SEWER  COMMISSION 

Statements  of  Cash  Flows 

Years  ended  December  3  1 ,  2008  and  2007 


Cash  flows  from  operating  activities: 
Receipts  from  customers 
Payments  to  suppliers 
Payments  to  employees 


Net  cash  provided  by  operating  activities 

Cash  flows  from  investing  activities: 
Investment  income 
Sales  (purchases)  of  investments,  net 

Net  cash  provided  by  investing  activities 

Cash  flows  from  capital  and  related  financing  activities: 
Purchase  of  capital  assets 
Proceeds  from  debt 
Payment  of  bond  principal 
Proceeds  from  commercial  paper 
Paydown  of  commercial  paper 
Capital  contributions 
Payment  of  bond  interest 

Net  cash  used  in  capital  and  related  financing  activities 

Net  (decrease)  increase 

Cash,  cash  equivalents,  beginning  of  year 

Cash,  cash  equivalents,  end  of  year 

Reconciliation  of  operating  income  to  net  cash  provided  by 
operating  activities: 

Excess  operating  revenues 

Adjustment  to  reconcile  operating  income  to  net  cash: 
Depreciation  and  amortization 
Change  in  assets  and  liabilities: 
Accounts  receivable,  net 
Unbilled  revenues 
Prepaid  expenses 
Accounts  payable 
Other  accrued  liabilities 
Other  long-term  liabilities 

Net  cash  provided  by  operating  activities 


2008  2007 


263,761,273 

(186,205,325) 

(38,789,829) 

256,878,489 

(184,655,416) 
(34,287,435) 

38,766,119 

37,935,638 

9,041,352 
888,677 

13,735,219 
6,626,056 

9,930,029 

20,361,275 

(73,227,378) 

7,525,024 

(22,469,216) 

25,300,000 

29,249,966 
(14,485,705) 

(71,668,695) 

7,567,158 

(20,570,519) 

152,800,000 

(131,200,000) 

21,453,580 

(17,982,160) 

(48,107,309) 

(59,600,636) 

588,839 

(1,303,723) 

5,478,302 

6,782,025 

6,067,142 

5,478,302 

14,784,922 

22,905,081 

19,673,414 

18,776,772 

(2,357,976) 

(3,362,046) 

56,616 

(642,587) 

(458,947) 

11,072,723 

(1,757,964) 

(3,247,672) 

(17,881) 

(2,019,097) 

468,601 

2,827,798 

38,766,119 

37,935,638 

18    See  accompanying  notes  to  financial  statements 


200S 


ANNUAL  REPORT 


BOSTON  WATER  AND  SEWER  COMMISSION 

Notes  to  Financial  Statements 
December  3  1 ,  2008  and  2007 


(1)  ORGANIZATION,  BASIS 
OF  PRESENTATION,  AND 
SUMMARY  OF  SIGNIFICANT 
ACCOUNTING  POLICIES 

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

Under  the  Enabling  Act,  the  Commission  is  subject 
to  regulation  with  respect  to  rates,  accounting  and 
other  matters,  where  applicable,  by  the  board  of 
commissioners  (the  Board). The  Board  is  appointed  by 
the  City's  Mayor  subject  to  confirmation  by  the  City 
Council.  It  regulates  the  rates  that  the  Commission 
can  charge  its  customers  for  water  and  sewer  usage. 
The  rates  charged  to  customers  are  based  on  the 
cash  required  for  the  Commission's  operations,  debt 
service,  and  reserve  contributions.  However,  there 
is  no  legally  adopted  budget  that  the  Commission 
must  adhere  to.  To  comply  with  the  external  financial 


reporting  requirements  of  the  Board,  the  accompanying 
financial  statements  are  presented  in  accordance  with 
U.S.  generally  accepted  accounting  principles  (GAAP) 
for  regulated  utilities  (i.e.,  the  accrual  basis  of  accounting 
and  the  capital  maintenance  measurement  focus). 

To  accommodate  the  rate-making  process,  the 
Commission  follows  the  accounting  standards  set  forth 
in  Statement  of  Financial  Accounting  Standards  (SFAS) 
No.  7 1 ,  Accounting  for  the  Effects  of  Certain  Types  of 
Regulation.  SFAS  No.  7 1  allows  certain  board  approved 
(a)  revenues  provided  for  future  allowable  costs  to  be 
deferred  until  the  costs  are  actually  incurred  (deferred 
credits)  and  (b)  costs  incurred  to  be  capitalized  if  future 
recovery  is  reasonably  assured  (deferred  charges). 
Revenues  and  expenses  appearing  in  the  supplemental 
schedule  of  revenues  and  expenses  -  rate  basis 
are  presented  in  the  same  format  as  utilized  in  the 
Commission's  operational  budgeting  and  rate-setting 
process.  The  revenues  and  expenses  shown  on  the 
statements  of  operations  are  presented  on  a  GAAP  basis. 
A  reconciliation  between  the  revenues  and  expenses 
of  these  two  operating  statements  for  the  year  ended 
December  3  1 ,  2008  is  provided  below: 


As  presented  in  the  statements  of  operations 
Operating  revenues/expenses 
Other  revenues/expenses 

Total 

Reclassifications  and  deferrals: 
Contributions  to  reserves 
GAAP  adjustments 

Excess  bond  payments  over  depreciation  and  amortization 
Interest  expense  (escrowed  funds) 
Investment  income  (escrowed  funds) 
Capital  expenditures 

Excess  revenue  used  to  offset  current  rates 
Other  deferrals 

As  presented  in  the  supplemental  schedule, 
rate  basis 


Revenues 


269,481,295 
9,041,352 

278,522,647 


(6,572,381) 

(1,943,266) 
80,754 

$      270,087,754 


Expenses 

254,696,373 
14,914,395 

269,610,768 

5,960,777 

(16,451,142) 

3,114,234 

(505,623) 

8,676,771 

(378,180) 

270,027,605 


19 


BOSTON  WATER  AND  SEWER  COMMISSION 

Notes  to  Financial  Statennents 

Years  ended  December  3  1 ,  2008  and  2007 


The  EnablingAct  requires  that  any  net  surplus,  as  defined 
by  the  rate-setting  process,  be  either  turned  over  to  the 
City  or  applied  to  offset  water  and  sewer  rates  for  the 
following  year  The  Commission  has  applied  $60,147 
and  $80,754  for  the  years  ended  December  3  1 ,  2008 
and  2007,  respectively,  to  offset  rates  in  the  respective 
subsequent  years 

(A)   REVENUE  BILLINGS 

Water  and  sewerage  fees  are  billed  to  users  of  the 
systems  on  a  monthly  cycle  basis.  Revenues  are  accrued 
for  periods  between  the  termination  of  billings  for  the 
various  cycles  and  the  end  of  the  year  Some  adjustments 
are  made  on  a  post-billing  basis  that  reduce  the  amount 
of  total  billings.  The  total  customer  bills  outstanding  as 
of  December  3  1 ,  2008  and  2007,  respectively  were 
$23,797,807  and  $2 1 ,439,83  I  .These  net  billing  amounts 
are  reduced  by  an  allowance  for  uncollectible  accounts 
of  $2,839,652  in  2008  and  2007,  respectively  to  arrive 
at  the  net  accounts  receivable. 


(B)  INVESTMENTS 

Investments  are  stated  at  fair  value.  Fair  value  is 
determined  based  on  quoted  market  prices. 

(C)  CAPITAL  ASSETS 

Capital  assets  are  stated  at  historical  cost.  Depreciation 
is  provided  on  the  straight-line  method  based  upon  the 
estimated  useful  lives  of  the  various  classes  of  assets. 
Maintenance  and  repairs  are  charged  to  expense  as 
incurred.  Major  renewals  or  betterments  over  $500 
are  capitalized  and  depreciated  over  their  estimated 
useful  lives. 

The  Commission  capitalizes  interest  costs  during 
construction  of  assets  for  its  own  use.  No  interest 
was  capitalized  in  2008  or  2007  because  the  amount 
calculated  was  not  material. 


(D)   COMPENSATED  ABSENCES 

Various  employees  of  the  Commission  accumulate 
unused  sick  time  (subject  to  certain  limitations)  to 
be  used  at  a  later  date  or  a  percentage  paid  in  cash 
upon  voluntary  resignation  and/or  retirement  from  the 
Commission  (subject  to  Commission  policies  and/or 
bargaining  agreements). The  liability  for  vacation  leave  is 
based  on  the  amount  earned  but  not  used;  for  sick  leave, 
it  is  based  on  a  percentage  of  the  amount  accumulated 
at  the  statement  of  net  assets  dates.The  liability  for  both 
amounts  is  calculated  based  on  the  pay  or  salary  rates  in 
effect  at  the  statements  of  net  assets  dates. 


(E)  DEPRECIATION 

The  Commission  provides  for  depreciation  using  the 
straight-line  method.  Estimated  useful  lives  used  in 
computing  depreciation  are  as  follows: 


Years 


Water: 
Works 
Meters 
Hydrants 

Sewerage: 
Works 

Pumping  station 
Buildings 
Other 


100 
10 
40 

75 

35 

40 

4-14 


(F)  CASH  EQUIVALENTS 

The  Commission  considers  all  highly  liquid,  short-term 
cash  investments  with  original  maturities  of  three 
months  or  less  to  be  cash  equivalents  for  purposes  of 
the  statements  of  cash  flows. 

(G)  BOND  ISSUE  COSTS 

Expenses  related  to  the  issuance  of  bonds  are  amortized 
on  a  weighted  average  basis  over  the  life  of  the  bonds, 
which  approximates  the  effective  interest  method. 


20 


200S 


ANNUAL  REPORT 


(H)   BUSINESS-TYPE  ACTIVITY 
ACCOUNTING  AND 
FINANCIAL  REPORTING 

Under  the  Governmental  Accounting  Standards  Board 
(GASB)  Statement  No.  20,  /Accounting  and  Financial 
Reporting  for  Proprietary  Activities,  the  Commission  has 
elected  to  apply  all  Financial  Accounting  Standards 
Board  (FASB)  statements  and  interpretations  issued  on 
or  before  November  30,  1 989,  except  those  that  conflict 
with  or  contradict  GASB  pronouncements. 

Business-type  activity  funds  distinguish  operating 
revenues  and  expenses  from  non  operating  items. 
Operating  revenues  and  expenses  result  from  providing 
services  in  connection  with  ongoing  operations.  All 
revenues  and  expenses  not  meeting  this  definition  are 
reported  as  non  operating  revenues  and  expenses 

(I)   USE  OF  ESTIMATES 

The  preparation  of  financial  statements  in  conformity 
with  U.S.  GAAP  requires  management  to  make  estimates 
and  assumptions  that  affect  the  reported  amounts  of 
assets  and  liabilities,  and  disclosure  of  contingent  assets 
and  liabilities,  at  the  date  of  the  financial  statements  and 
the  reported  amounts  of  revenues  and  expenses  during 
the  reporting  period.  Actual  results  could  differ  from 
those  estimates. 


(K)  IMPLEMENTATION  OF  NEW 
ACCOUNTING  STANDARDS 

GASB  Statement  No.  49,  Accounting  and  Financial 
Reportingby  Employers  forPollution  Remediation  Obligations, 
requires  governments  to  reasonably  determine  potential 
polluted  sites  and  guidance  to  recognize  Pollution 
Remediation  Obligations  (PRO)  components  as  liability 
Governments  with  revenues  greater  than  $100  million 
are  required  to  implement  this  standard  for  financial 
statement  periods  beginning  after  December  1 5,  2007. 
The  Commission  implemented  this  standard  in  the 
current  year  See  footnote  1 5. 

(2)   DEFERRED  CHARGES 
AND  CREDITS 

As  discussed  in  note  I ,  the  application  of  SPAS  No.  7 1 
results  in  certain  revenues  and  expenses  being  removed 
from  the  statements  of  operations  and  reflected  in  the 
statements  of  net  assets  as  deferred  charges  or  deferred 
credits.  The  revenues  and  expenses  that  have  been 
removed  from  the  statements  of  operations  and  added 
to  the  statements  of  net  assets  as  deferred  credits  appear 
in  the  line  "Excess  revenues  used  to  fund  reserves  and 
other  deferrals"  on  the  statements  of  operations.  The 
components  of  these  amounts  are  as  follows: 


(J)  APPLICATION  OF  RECENT 
ACCOUNTING  STANDARDS 

GASB  Statement  No.  45,  Accounting  and  Financial 
Reporting  by  Employers  for  Postemployment  Benefits 
Other  Than  Pensions,  requires  governments  to  recognize 
other  post-employment  benefits  (OPEB)  when  earned 
rather  than  on  a  pay-as-you-go  basis.  Governments 
with  revenues  greater  than  $  1 00  million  are  required  to 
implement  this  standard  for  financial  statement  periods 
beginning  after  December  15,  2006.  The  Commission 
implemented  this  standard  in  2007.  See  footnote  9. 


21 


2008 


2007 


C  ontributions  to  reserves 

Principal  payments  on  long-term  debt 

Interest  paid  from  escrow  funds 

Capital  expenditures 

Depreciation  and  amortization 

Investmart  income  on  project  and  escrow  funds 

Other 


$  5,960,777 

21,849,309 

(505,624) 

8,676,771 

(14,712,486) 

1,943,266 

560,161 

$        23,772,174 


3,971,000 

19,969,755 

(560,543) 

13,853,358 

(17,401,895) 

4,905,018 

626,083 

25362,776 


The  activity  in  and  components  of  deferred  charges  included  in  the  accompanying  statements  of  net  assets 
are  as  follows: 


December  31,         Increase         December  31,         Increase         December  31, 
2006  (decrease)  2007  (decrease)  2008 


Deferred  loss  on  land  taking 
Accrued  pension  expense 
Debt  extinguishment  expense 

Total  deferred 
charges 


5,084,533 
9,876,196 
3,037,079 


$     17,997,g 


(221,067)  4,863,466 

(898,465)  8,977,731 

(260,699)  2,776,380 


(221,067)  4,642,399 

(938,339)  8,039,392 

(260,699)  2,515,681 


(1,380,231)         16,617,577  (1,420,105)         15,197,472 


The  activity  in  and  components  of  deferred  credits  and  reserves  included  in  the  accompanying  statements 
of  net  assets  are  as  follows: 


Debt  service 
Capital  improvements 
Working  capital 
Self-insurance 


Reduction  of  future  rates 

Total  deferred 
credits  and 

reserves 


December  31, 

Increase 

December  31, 

Increase 

December  31, 

2006 

(decrease) 

3,971,000 
21,391,776 

2007 

(decrease) 

5,960,778 
17,811,414 

2008 

;  127,864,824 

260,009,316 

11,634,106 

2,240,000 

131,835,824 

281,401,092 

11,634,106 

2,240,000 

427,111,022 

137,796,602 

299,212,506 

11.634,106 

2,240,000 

401,748,246 

25,362,776 

23,772,192 

450,883,214 

134,108 

(53,354) 

80,754 

(20,607) 

60,147 

;  401,882,354 

25,309,422 

427,191,776 

23,751,585 

450,943,361 

(3)   CAPITAL  ASSETS 

The  cost  and  activity  of  water  and  sewerage  capital  assets  in  service  and  related  accumulated  depreciation  at 
December  3  1 ,  2008  and  2007  are  as  follows: 


22 


200S 


ANNUAL  REPORT 


Capital  assets,  not  being  depreciated: 
Land 
Construction  in  progress 

Total  capital  assets 
not  being  depreciated 

Capital  assets,  being  depreciated: 
Buildings  and  improvements 
Machinery  and  equipment 
Infrastructure 

Total  capital  assets 
being  depreciated 

Less  accumulated  depreciation  for: 
Buildings  and  improvements 
Machinery  and  equipment 
Infrastructure 

Total  accumulated 
depreciation 

Total  capital  assets  being 
depreciated,  net 

Capital  assets,  net 


Balance  at 

December  31, 

2007 

Increases 

Decreases 

Balance  at 

December  31, 

2008 

5,884,243 
206,012,324 

211,896,567 

66,502,512 

28,787,585 

817,837,706 

73,041,917 

73,041,917 

212,594 

723,781 

84,178,878 

85,115,253 

1,910,327 

1,427,476 

13,357,228 

16,695,031 

68,420,222 
141,462,139 

(84,930,432) 
(84,930,432) 

5,884,243 
194,123,809 

200,008,052 

66,715,106 

29,511,366 

902,016,584 

913,127,803 

998,243,056 

11,780,432 
23,108,922 
167,735,665 

— 

13,690,759 

24,536,398 

181,092,893 

202,625,019 

219,320,050 

710,502,784 

778,923,006 

;     922,399,351 

(84,930,432) 

978,931,058 

Balance  at 

December  31, 

2006 

Increases 

Decreases 

Balance  at 
December  31, 

2007 

$         5,884,243 
202,888,094 

208,772,337 

66,502,512 

27,481,908 

755,165,027 

65,328,506 
65,328,506 

1,305,677 
62,672,679 

63,978,356 

2,286,876 

1,592,644 

13,341,698 

17,221,218 

(62,204,276) 
(62,204,276) 

5,884,243 
206,012,324 

211,896,567 

66,502,512 

28,787,585 

817,837,706 

849,149,447 

913,127,803 

9,493,556 
21,516,278 
154,393,967 

— 

11,780,432 
23,108,922 
167,735,665 

185,403,801 

202,625,019 

663,745,646 

46,757,138 
112,085,644 

710,502,784 

$     872,517,983 

(62,204,276) 

922,399,351 

Capital  assets,  not  being  depreciated: 
Land 
Construction  in  progress 

Total  capital  assets 
not  being  depreciated 

Capital  assets,  being  depreciated: 
Buildings  and  improvements 
Machinery  and  equipment 
Infrastructure 

Total  capital  assets 
being  depreciated 

Less  accumulated  depreciation  for: 
Buildings  and  improvements 
Machinery  and  equipment 
Infrastructure 

Total  accumulated 
depreciation 

Total  capital  assets  being 
depreciated,  net 

Capital  assets,  net 


23 


During  1 999,  the  Boston  Redevelopment  Authority  (BPA) 
took  land  owned  by  the  Commission  through  eminent 
domain.  The  book  value  of  the  land,  at  the  time  of  the 
taking,  was  $7,598,7 1 0.  A  portion  of  this  loss,  $6,632,000, 
of  which  $4,642,399  and  $4,863,466  remain  unamortized 
at  December  3 1 ,2008  and  2007,  respectively  was  included 
in  deferred  charges  in  the  accompanying  statements  of  net 
assets  as  that  amount  will  be  recovered  through  future 
rates.The  Commission  was  paid  no  compensation  for  the 
land  and  does  not  expect  to  receive  any  consideration 
from  BRA  in  the  future. 


(4)   LONG-TERM  OBLIGATIONS 

The  Commission  issues  revenue  bonds  to  support 
various  projects. 

The  following  is  a  summary  of  revenue  bond  activity  for 
the  years  ended  December  3  1 ,  2008  and  2007  (amounts 
in  thousands). 


Description 


Revenue  bonds: 

1992  Series  A,  bearing  an 
interest  rate  of  5.75%, 
with  maturity  dates 
ranging  from  November  1, 
2008  to  2013 

1993  Series  A,  bearing  interest 
rates  ranging  from  5.125%  to 
5.25%  with  maturity  dates 
ranging  from  November  1, 
2012  to  2019 

1994  Series  A,  bearing  a  variable 
interest  rate,  with  maturity 
dates  rangmg  from 
November  1,2008  to  2024 

1998  Series  A,  bearing  interest 
rates  ranging  from  5.0%  to 
5.125%  with  maturity  dates 
ranging  from 
November  1,2014  to  2015 

1998  Series  C,  bearing  an 
interest  rate  of  5.2%, 
with  maturity  dates  ranging 
from  November  1 , 
2008  to  2021 

1998  Series  D,  bearing  interest 
rates  ranging  from  4.75%  to 
5.0%  with  maturity  dates 
ranging  from  November  1 , 
2008  to  2028 

2003  Series  A,  bearing  interest 
rates  ranging  from  3.125%  to 
4.0%  with  maturity  dates 
ranging  from  November  1, 
2008  to  2011 

2004  Series  A,  bearing  interest 
rates  ranging  from  3.5%  to 
5.0%  with  maturity  dates 
ranging  from  November  1, 
2008  to  2025 


Plus  (less): 

Unamortized  loss  on 

refunding 
Unamortized  issue  premium 

Net  revenue  bonds 


Balance  at 

Balance  at 

Amounts 

December  31, 

December  31, 

due  within 

2007 

Additions 

Reductions 

2008 

one  year 

$  30,810 


46,735 


30,700 


109,030 


50,685 


307,345 


(2,254) 
635 


4,445  26,365 


46,735 


1,000  29,700 


$  305,726 


12,960 


11,200 


3,130  105,900 


3,690 


550  50,135 


12,825  294,520 


(588)         (1,666) 
74  561 


3,280 


190 


12,311         293,415 


24 


200S 


ANNUAL  REPORT 


Description 


Revenue  bonds: 

1992  Series  A,  bearing  interest 
rates  ranging  from  6. 1%  to 
5.75%  with  maturity  dates 
ranging  fi-om  November  1 , 
2008  to  2013 

1993  Series  A,  bearing  interest 
rates  ranging  from  5. 125%  to 
5.25%  with  maturity  dates 
ranging  from  November  1, 
2012  to  2019 

1994  Series  A,  bearing  a  variable 
interest  rate,  with  maturity 
date  ranging  from 
November  1,2008  to  2024 

1998  Series  A,  bearing  interest 
rates  ranging  from  5.0%  to 
5. 125%  with  maturity  dates 
ranging  from 
November  1,2014  to  2015 

1998  Series  C,  bearing  interest 
rates  ranging  from  4.5%  to 
5.2%  with  maturity  dates 
ranging  from 
2008  to  2021 

1998  Series  D,  bearing  interest 
rates  ranging  from  4.625%  to 
5.0%  with  maturity  dates 
ranging  from  November  1 , 
2008  to  2028 

2002  Series  A,  bearing  an 
interest  rate  of  3.0%, 
with  a  maturity  date 
of  November  1,2007 

2003  Series  A,  bearing  interest 
rates  ranging  from  2.5%  to 
4.0%  with  maturity  dates 
ranging  from  November  1, 
2008  to  2011 

2004  Series  A,  bearing  interest 
rates  ranging  from  3.0%  to 
5.0%  with  maturity  dates 
ranging  from  November  1, 
2008  to  2025 


Balance  at 

December  31, 

2006 


Balance  at 

December  31, 

2007 


Amounts 
due  within 
one  year 


4,445 


46,735 


4,000 


51,455 


50,685 


Plus  (less): 

Unamortized  loss  on 

refunding 
Unamortized  issue  premium 

Net  revenue  bonds 


(3,013) 
748 


(759) 
113 


(2,254) 
635 


11,709 


12,825 


25 


Annual  sinking  fund  requirennents  and  debt  principal  and  interest  maturities  for  all  future  years  as  of  December  3  I 
2008  are  as  follows  (amounts  in  thousands): 


2009 

2010 

2011 

2012 

2013 

2014-2018 

2019-2023 

2024  -  2028 


Revenue  bonds 

Principal 

Interest 

13,430 

15,020 

14,080 

14,368 

14,775 

13,669 

15,530 

12,917 

16,365 

12,077 

84,600 

47,242 

85,935 

24,755 

49,805 

6,163 

294,520 

146,211 

(A)  PRIOR  YEAR  DEBT  REFUNDING 

In  the  aggregate,  $  1 33,850,000  remains  outstanding  at  December  3 1 ,  2008,  on  the  bond  issues  that  were  defeased 
"in-substance"  during  prior  years. 

(B)  RESTRICTED  CASH  AND  INVESTMENTS 

The  Commission  has  established  both  trusteed  and  nontrusteed  funds  with  investments,  principally  short-term 
securities,  which  are  restricted  for  payment  of  specified  liabilities,  capital  projects,  or  other  costs  of  operations.The 
components  of  the  trusteed  and  nontrusteed  investments  at  December  3  1 ,  2008  and  2007  are  as  follows: 


Trusteed: 

U.S.  government  obligations 

Other  government  agency  obligations 

Institutional  money  market  investment  funds 

Cash 

Repurchase  agreements 


Nontrusteed: 

U.S.  government  obligations 

Other  government  agency  obligations 

Institutional  money  market  investment  funds 

Cash 


Restricted  cash  and  investmoits 
Less  trusteed  and  nontrusteed  cash 

Trusteed  and  nontrusteed  investments 


2008 


11,972,219 
64,570,605 
73,237,924 
573,029 
11,746,250 

162,100,027 


48,805 

19,751,672 

3,555,379 

23,355,856 

185,455,883 

(4,128,408) 

$      181,327,475 


2007 


699,889 

141374,448 

2,465,286 

1,419,252 

11,746,250 

157,705,125 


85,745 

6,031,153 

16,769,396 

9,104,046 

31,990,340 

189,695,465 

(10,523,299) 

179,172,166 


The  Commission's  bond  resolution  requires  certain 
accounts  to  maintain  a  minimum  balance  at  all  times.The 
resolution  allows  the  Commission  to  utilize  surety  bonds 
where  the  issuer  maintains  a  minimum  credit  rating  of 
an  "AA"  or  equivalent  towards  the  minimum  balance  in 


the  senior  debt  service  reserve  account.  During  2008, 
the  surety  bond  provider  was  downgraded  to  below 
an  "AA"  or  equivalent.  In  response  to  the  downgrade, 
with  Board  approval,  the  Commission  transferred  cash 
to  the  senior  debt  service  reserve  account  to  fund  the 


26 


200S 


ANNUAL  REPORT 


difference. The  bond  resolution  is  silent  on  the  annount 
of  time  to  fund  a  reserve  shortfall,  however;  it  does 
define  an  event  of  default  as  any  violation  of  the  bond 
resolution  that  is  not  resolved  in  30  days  or;  if  that  period 
is  not  adequate,  as  expeditiously  as  possible  in  whatever 
reasonable  period  of  time  is  required. The  Commission 
funded  the  shortfall  within  42  calendar  days. 

(C)   LONG-TERM  NOTES  PAYABLE 

During  1997  and  1996,  the  Commission  executed  loan 
agreements  with  the  Massachusetts  Water  Pollution 
Abatement  Trust  (MWPAT)  to  finance  and  refinance  a 


portion  of  the  Commission's  water  pollution  abatement 
projects.  For  purposes  of  offsetting  principal  and 
interest  payments,  an  amount  aggregating  approximately 
$6,635,000  as  of  December  31,  2008,  consisting  of 
contract  assistance  payments  from  the  Commonwealth 
of  Massachusetts  and  other  interest  subsidies  from 
MWPAT,  will  be  recognized  as  capital  grants  over  the 
remaining  term  of  the  loans. 

The  scheduled  loan  payments  for  all  MWPAT 
obligations  and  related  subsidies  are  shown  below  as  of 
December  3  1 ,  2008  (amounts  in  thousands): 


Contract 

Equity 

assistance 

Principal 

$        1,825 

Interest 

623 

Total 

earnings 

309 

payments 

815 

Total 

1,124 

Principal 

1,186 

Interest 

145 

Total 

2009 

2,448 

1,331 

2010 

1,894 

543 

2,437 

271 

801 

1,072 

1,235 

125 

1,360 

2011 

1,971 

459 

2,430 

230 

801 

1,031 

1,290 

103 

1,393 

2012 

2,057 

372 

2,429 

188 

804 

992 

1,354 

80 

1,434 

2013-2017 

6,485 

$      14,232 

660 

2,657 

7,145 
16,889 

346 

1,344 

2,070 
5,291 

2,416 
6,635 

4,595 
9,660 

98 

4,693 

551 

10,211 

The  Commission  has  entered  into  various  interest-free 
loan  agreements  with  the  MWRA.  Under  these 
agreements,  the  Commission  is  required  to  repay  these 
loans  in  annual  installments  as  part  of  the  MWRA's 
Infiltration/Inflow  Local  Financial  Assistance  program  (I/I), 
Local  Water  Infrastructure  Rehabilitation  Program  (WIR) 


and  Pipeline  Assistance  Program  (PAP). These  programs 
are  designed  to  assist  service  area  communities  with 
sewer  system  rehabilitation. 

The  following  is  a  summary  of  long-term  note  activities 
for  the  years  ended  December  3  1 ,  2008  and  2007. 


Description 


MWRA  1/1  Program  Phase  111, 

interest  free,  due 

August  15,2010 
MWRA  I/I  Program  Phase  IV, 

interest  free,  due 

February  15,2012 
MWRA  I/I  Program  Phase  V, 

interest  free,  due 

August  15,  2013 
MWRA  P.A.P.  Program, 

interest  free  due 

November  15,2018 
MWPAT  Pool  I,  subsidized 

interest,  due  August  1,  2013 
MWPAT  Pool  II,  subsidized 

interest,  due  August  1,  2015 
MWPAT  Pool  III,  subsidized 

interest,  due 

February  1,2017 


Total  long-term 
notes 


Balance  at 
December  31, 

2007  Additions 


$        1,720,810 


6,035,588 


2,968,351 


6,915,974 


Balance  at  Amounts 

December  31,         due  within 

Reductions  2008  one  year 


881,806 


839,004 


1,632,400 


1,952,817  4,082,771 


593,670  4,007,081 


561,101 


1,252,499 


920,150 


28,223,582  5,892,625  4,466,293  29,649,914  5,055,556 

4,510,467  —  678,894  3,831,573  706,305 

4,555,324  —  464,301  4,091,023  492,740 


606,435  6,309,539  626,348 


54,930,096  7,525,025  9,644,216  52,810,905  9,614,699 


27 


Description 


Balance  at 
December  31, 

2006  Additions 


MWRA  I/I  Program  Phase  III, 

interest  free,  due 

August  15,2010 
MWRA  I/I  Program  Phase  IV, 

interest  free,  due 

February  15,2012 
MWRA  I/I  Program  Phase  V, 

interest  free,  due 

November  15,  2012 
MWRA  P.A.P.  Program, 

interest  free  due 

November  15,2017 
MWPAT  Pool  I,  subsidized 

interest,  due  August  1,  2013 
MWPAT  Pool  II,  subsidized 

interest,  due  August  1 ,  20 1 5 
MWPAT  Pool  III,  subsidized 

interest,  due 

February  1,  2017 


2,602,616 


Balance  at  Amounts 

December  31,         due  within 

Reductions  2007  one  year 


881,806 


1,720,810 


4,345,436  3,035,807  1,345,655  6,035,588 


2,968,351 


2,968,351 


881,806 


1,952,817 


593,670 


30,970,575  1,563,000  4,309,993  28,223,582  4,466,293 

5,164,611  —  654,144  4,510,467  678,894 

4,992,828  —  437,504  4,555,324  464,301 


7,502,391 


586,417  6,915,974 


606,435 


Total  long-term 
notes 


55,578,457  7,567,158  8,215,519  54,930,096  9,644,216 


(5)   SHORT-TERM  OBLIGATIONS 

During  fiscal  year  2006,  the  Commission  instituted  a  commercial  paper  program  for  the  purpose  of  financing  capital 
expenditures.The  following  represents  the  Commission's  commercial  paper  outstanding  as  of  December  3  1 ,  2008 
and  2007: 


Description 


Commercial  paper  notes: 
Cabrera  Capital  program 

due  July  3,  2008 

through  January  20,  2009 
Bank  of  America  program 

due  August  6,  2008 

through  February  4,  2009 


Total  short-term  notes 


Balance  at 
December  31, 

2007 


$        15,000,000 

31,600,000 
$       46,600,000 


Additions 


25,000,000 


300,000 


25,300,000 


Balance  at 
December  31, 
Reductions  2008 


40,000,000 

31,900,000 
71,900,000 


Description 


Commercial  paper  notes: 
Cabrera  Capital  program 

due  March  7,  2008 
Lehman  Brothers  program 
due  February  13,2008 
through  August  6,  2008 


Total  short-term  notes 


Balance  at 

December  31, 

2006 


$         5,000,000 

20,000,000 
$       25,000,000 


Additions 

25,000,000 

127,800,000 
152,800,000 


Balance  at 
December  31, 
Reductions  2007 


15,000,000 

116,200,000 
131,200,000 


15,000,000 

31,600,000 
46,600,000 


Subsequent  to  year-end,  on  March  23,  2009,  the  Commission  issued  $148,665,000  of  general  revenue  bonds  to 
refinance  $71,900,000  of  commercial  paper  due  by  April  9,  2009  and,  as  such,  has  classified  the  commercial  paper 
as  a  long-term  liability  in  the  accompanying  financial  statements, 

28 


200S 


ANNUAL  REPOR- 


(6)   MASSACHUSETTS  WATER  RESOURCES  AUTHORITY 

The  MWRA  provides  all  the  Commission's  water  supply  and  sewertreatment  requirements  and  assesses  the  Commission 
for  a  portion  of  its  actual  operating  and  capital  expenses.The  assessment  is  based  on  the  MWRA's  fiscal  year  (July  I 
to  June  30),  and  payments  are  due  to  the  Authority  in  ten  equal  installments  excluding  the  months  of  January  and  July 
Amounts  included  in  the  statements  of  operations  for  assessments  by  the  Authority  for  2008  and  2007  are  as  follows: 


Assessments  allocated  on: 
Water  usage 
Wastewater  usage 

Total 


2008 


$    64,750,699 
100,912,502 

$   165,663,201 


2007 


63,342,139 
96,394,712 

159,736,851 


In  2008  and  2007,  over  84%  and  82%  respectively  of  water 
provided  from  the  Authority  was  billable  to  customers. 
Since  its  inception,  the  Commission  has  maintained  the 
percentage  of  billable  water  at  78%  and  is  continuing 
to  take  steps  to  improve  the  amount  of  billable  waten 
including  replacement  of  old  and  defective  meters  and 
implementation  of  a  comprehensive  leak  detection  and 
repair  program 

(7)  TRANSACTIONS  WITH  THE 

CITY  OF  BOSTON 

The  Commission's  ongoing  program  to  meter  City 
facilities  has  resulted  in  billings  to  ten  City  departments 
during  2008  and  2007,  respectively  based  on  actual 
consumption  of  $5, 1  1 2,876  and  $5, 1 89,049. 

The  City  provides  services  to  the  Commission,  including 
paving  and  facilities  rental.  Operating  costs  billed  to  the 
Commission  by  the  City  were  $423,000  and  $405,227 
during  2008  and  2007,  respectively  Capital  costs  billed 
by  the  City  were  $  1 ,469,398  and  $2,578,880  during 
2008  and  2007,  respectively 

The  Commission  has  an  agreement  with  the  City  that 
allows  the  Commission's  water  and  sewer  bills  that 
have  remained  unpaid  for  more  than  two  years  to  be 
added  as  liens  on  the  City's  property  tax  bills.  Under 
this  agreement,  the  City  provides  collection  services  on 
these  bills  for  an  administrative  fee.  As  of  December  3  I , 
2008  and  2007  both  years,  the  receivables  totaling 
approximately  $150,404  of  billings  had  been  included 
on  property  tax  bills. 

Under  the  Commission's  own  tax  lien  program,  accounts 
which  have  unpaid  balances  over  two  years  old  are 
transferred  into  the  tax  lien  program  for  collection.  As  of 


December  3  1 ,  2008  and  2007,  $930,93 1  and  $846,464, 
respectively  remains  outstanding. 

(S)   PENSION  BENEFITS 

The  Commission  provides  retirement  benefits  to 
substantially  all  of  its  employees  through  the  State-Boston 
Retirement  System  (SBRS  or  the  System),  a  cost-sharing 
multi-employer  retirement  plan. 

A  dispute  concerning  the  Commission's  past  and  future 
obligations  to  all  Commission  employees  covered  by 
the  SBRS  was  settled  in  1 986,  resulting  in  a  payment  of 
$  1 9, 1 00,000  to  the  SBRS.  This  payment  was  funded 
primarily  through  1985  and  1986  bond  proceeds  and 
is  recorded  as  a  deferred  charge  that  will  be  recovered 
through  future  rates.  As  part  of  the  settlement  with  the 
SBRS,  the  Commission  annually  reimburses  the  City 
for  the  Commission's  share  of  pension  benefits  paid  to 
Commission  employees.The  Commission's  share  is  based 
upon  the  proportion  of  each  employee's  total  years  of 
creditable  service,  level  of  compensation,  and  group 
classification.  Employees  become  100%  vested  after 
ten  years  of  creditable  service  as  defined  by  Chapter  32 
of  the  Massachusetts  General  Laws  (MGL). 

(A)   DESCRIPTION  OF  THE  SBRS 

PLAN 

The  SBRS  is  a  cost-sharing  multi-employer  public  employee 
retirement  system  established  under  Chapter  32  of  the 
MGL  and  is  a  member  of  the  Massachusetts  Contributory 
Retirement  System.  The  System  provides  retirement, 
disability,  and  death  benefits  to  plan  members  and 
beneficiaries.  Chapter  32  of  the  MGL  assigns  authority  to 
establish  and  amend  benefit  provisions  of  the  plan.  The 
System  issues  a  publicly  available  financial  report  which  can 

29 


be  obtained  through  the  Commonwealth  of  Massachusetts, 
Public  Employee  Retirement  Administration  Commission 
(PERAC),  One  Ashburton  Place,  Boston,  Massachusetts 
02108. 

(B)  FUNDING  POLICY 

Plan  members  are  required  to  contribute  to  the  SBRS 
at  rates  ranging  from  5%  to  I  1%  of  annual  covered 
compensation.  The  Commission  is  required  to  pay  into 
the  SBRS  its  share  of  the  remaining  systemwide  actuarially 
determined  contribution  plus  administration  costs  which 
are  apportioned  among  the  employers  based  on  active 
covered  payroll. Through  fiscal  1 998,  the  Commonwealth 
of  Massachusetts  reimbursed  the  SBRS  for  a  portion  of 
benefit  payments  for  cost-of-living  increases.  Beginning 
July  1 ,  1 998,  the  SBRS  is  locally  funding  the  cost-of-living 
adjustments  as  approved  by  the  SBRS'  Board  of  Retirement, 
the  City's  Mayor;  and  City  Council.The  contributions  of  plan 
members  and  the  Commission  are  governed  by  Chapter  32 
of  the  MGLThe  Commission's  contributions  to  the  System 
for  the  years  ended  December  3  1 ,  2008,  2007  and  2006 
were  approximately  $549,897,  $528,649  and  $50 1 ,3  M , 


respectively  which  equaled  its  required  contribution  each 
year  Total  employee  contributions,  based  on  actuarially 
determined  amounts,  were  approximately  $2,468,906, 
$2,352,56 1  and  $2,2 1 4,840,  or  8.9%  of  covered  payroll  in 
2008, 2007  and  2006,  respectively 

(C)   THE  COMMISSION'S  TRUST 
FUND 

On  a  quarterly  basis,  the  Commission  deposits  an  amount 
into  aTrust  Fund,  the  assets  of  which  are  used  to  reimburse 
the  SBRS  for  amounts  paid  on  behalf  of  the  Commission. 
As  required  by  the  Commission's  Enabling  Act,  employee 
pension  contributions  are  transferred  to  the  SBRS  directly 
and  are  either  returned  to  employees  upon  termination 
on  for  vested  employees,  are  used  to  defray  a  portion  of 
the  total  retirement  benefit.  The  Commission's  policy  is 
to  make  employer  contributions  to  the  Trust  Fund  based 
upon  the  actuarially  determined  cost  of  future  benefits, 
net  of  employee  contributions. 

Trust  Fund  assets  at  December  3  1 ,  2008  and  2007  are  as 
follows: 


2008 


Assets  (at  fair  value): 
Common  stock 
Intemational  stock 
Fixed  income 
Equity  funds 
Fixed  income  funds 

Total 


$        19,853,511 

7,855,850 

12,098,051 

9,435,568 

8,629,651 

$        57,872,631 


2007 


35,519,458 

14,235,538 
28,449,049 


78,204,045 


The  Trust  Fund  activity  is  as  follows: 


Assets  (at  fair  value),  December  3 1 ,  2006 
Employer  contributions 
Investment  income  and  gains 
Management  fees 
Payments  to  SBRS 

Assets  (at  fair  value),  December  31,  2007 

Employer  contributions 
Investment  income  and  losses 
Management  fees 
Payments  to  SBRS 

Assets  (at  fair  value),  December  31,  2008 


$        80,118,054 

528,649 

3,888,098 

(296,980) 

(6,033,776) 

78,204,045 

549,897 

(20,177,278) 

(162,536) 

(541,497) 

$        57,872,631 


The  investment  portfolio  is  regulated  by  the  MGL,  Chapter  32,  Section  23.  The  investments  are  managed  by 
independent  investment  advisors.  Bank  of  America  is  the  custodian  of  the  portfolio.  The  Trust  Fund  assets  will  be 
used  by  the  Commission  to  reimburse  SBRS  in  future  years  for  required  employer  contributions. 


30 


200S 


ANNUAL  REPORT 


(9)   POST-EMPLOYMENT 

BENEFITS  OTHER  THAN 
PENSIONS 

GASB  Statement  No.  45,  /Accounting  and  Financial 
Reporting  by  Employers  for  Post-ennployment  Benefits 
Other  Than  Pensions,  is  required  to  be  implemented 
by  governments  with  annual  revenues  greater  than 
$100  million  for  financial  statement  periods  beginning 
after  December  15,  2006.  Statement  No.  45  requires 
governments  to  account  for  other  post-employment 
benefits,  primarily  healthcare,  on  an  accrual  basis 
rather  than  on  a  pay-as-you-go  basis.  The  effect  is 
the  recognition  of  an  actuarially  required  contribution 
as  an  expense  when  a  future  retiree  earns  their 
postemployment  benefit  ratherthan  when  they  use  their 
postemployment  benefit.  To  the  extent  that  an  entity 
does  not  fund  their  actuarially  required  contribution, 
a  post-employment  benefit  liability  is  recognized  over 
time. 

In  addition  to  offering  pension  benefits  to  their  retirees, 
the  Commission  also  offers  other  post-employment 
benefits  (OPEB)  upon  retirement. 

The  Commission  participates  in  the  City  of  Boston's 
health  insurance  program,  which  is  administered  by 
the  City  of  Boston  as  an  agent  multiple-employer 
defined  benefit  OPEB  plan.  The  OPEB  plan  does  not 
issue  a  stand-alone  financial  report.  Participation  in  the 
City's  plan  was  made  via  an  agreement  between  the 
City  and  the  Commission  and  may  be  amended  with 
the  agreement  of  both  parties.  The  Commission  also 
offers  its  retirees  disability  and  life  insurance,  which 
are  established  and  amended  via  collective  bargaining 
agreements  and  the  Policy  Governing  Executive 
Employees. 

Medical  and  prescription  drug  benefits  are  provided 
to  all  eligible  retirees  not  enrolled  in  Medicare  through 
a  variety  of  plans  offered  by  Blue  Cross  Blue  Shield 
of  Massachusetts,  Harvard  Pilgrim  HealthCare,  and 
Neighborhood  Health  Plan.  Medical  and  prescription 
drug    benefits    are    provided    to    retirees    enrolled 


in  Medicare  through  supplemental  and  Medicare 
Advantage  plans  offered  by  Blue  Cross  Blue  Shield  of 
Massachusetts,  Harvard  Pilgrim  HealthCare,  and  Tufts 
Health  Plan.  The  Commission  also  pays  50%  of  the 
retiree  life  insurance  premium  and  reimburses  retirees 
50%  of  their  Medicare  Part  B  premium. 

Groups  I  and  2  retirees  with  at  least  1 0  years  or  20  years 
of  creditable  service  are  eligible  at  age  55  or  any  age, 
respectively  Retirees  on  ordinary  or  accidental  disability 
retirement  are  eligible  at  any  age  while  ordinary  disability 
retirement  requires  10  years  of  creditable  service. The 
surviving  spouse  is  eligible  to  receive  both  pre-  and 
post- retirement  death  benefits,  as  well  as  medical  and 
prescription  drug  coverage. 

(A)  FUNDING  POLICY 

Employer  and  employee  contribution  rates  are  governed 
by  the  collective  bargaining  agreements  and  the  Policy 
Governing  Executive  Employees.  Prior  to  January  I , 
2008,  the  City  of  Boston  paid  for  the  Commission's 
retirees'  health  benefits.  Subsequent  to  January  1 ,  2008, 
the  Commission  will  be  responsible  for  the  payment 
of  their  retirees'  health  benefits.  The  Commission 
currently  funds  the  plan  on  a  pay-as-you-go  basis. The 
Commission  and  plan  members  share  the  cost  of  health 
insurance.  As  of  June  30,  2007,  the  valuation  date,  the 
plan  members  contribute  10%  to  25%  of  the  monthly 
premium  cost,  depending  on  the  plan  in  which  they  are 
enrolled.  The  Commission  contributes  the  balance  of 
the  premium  cost. 

(B)  ANNUAL  OPEB  COST  AND  NET 
OPEB  OBLIGATION 

The  Commission's  annual  OPEB  expense  is  calculated 
based  on  the  annual  required  contribution  of  the 
employer  (ARC),  an  amount  actuarially  determined  in 
accordance  with  the  parameters  of  GASB  Statement 
No.  45.The  ARC  represents  a  level  of  funding  that,  if  paid 
on  an  ongoing  basis,  is  projected  to  cover  the  normal 
cost  each  year  and  amortize  any  unfunded  actuarial 
liability  over  a  period  of  thirty  years.The  following  table 
shows  the  components  of  the  Commission's  annual 


31 


OPEB  cost  for  the  year  ending  December  3  1 ,  2008,  the  amount  actually  contributed  to  the  plan,  and  the  change  in 
the  Commission's  net  OPEB  obligation  based  on  an  actuarial  valuation  as  of  June  30,  2007: 


Annual  Required  Contribution  (ARC) 
Interest  on  net  OPEB  obligation 
Adjustment  to  ARC 

Annual  OPEB  cost 
Contributions  made 

Change  in  net  OPEB  obligation 
Net  OPEB  obligation  -  beginning  of  year 
Net  OPEB  obligation  -  end  of  year 


$         9,250,389 

269,420 

(204,012) 

9,315,797 

9,315,797 

5,987,121 

$        15,302,918 


The  Commission's  annual  OPEB  cost,  the  percentage  of  annual  OPEB  cost  contributed  to  the  plan,  and  the  net  OPEB 
obligation  were  as  follows: 


Fiscal  year  ended 


2008 
2007 


Annual 
OPEB  cost 

9,315,797 
5,987,121 


Percentage 

of  OPEB  cost 

contributed 

— % 


Net  OPEB 
obligation 

9,315,797 
5,987,121 


The  Commission's  net  OPEB  obligation  as  of  December  3  1 ,  2008  is  recorded  as  a  component  of  the  "Other  Long-term 
Liability"  line  item. 


(C)   FUNDED  STATUS  AND  FUNDING  PROGRESS 

The  funded  status  of  the  plan  as  of  December  3  1 ,  2008,  based  on  an  actuarial  valuation  as  of  June  30,  2007, 
was  as  follows: 


Actuarially  accrued  liability  (AAL) 
Actuarial  value  of  plan  assets 

Unfunded  actuarial  accrued  liability  (UAAL) 

Funded  ratio  (actuarial  value  of  plan  assets/ AAL) 

Covered  payroll  (active  plan  members) 

UAAL  as  a  percentage  of  covered  payroll 


$       135,023,636 

$       135,023,636 
— % 
$        23,691,142 
569.93% 


Actuarial  valuations  of  an  ongoing  plan  involve  estimates 
of  the  value  of  reported  amounts  and  assumptions 
about  the  probability  of  occurrence  of  events  far  into 
the  future.  Examples  include  assumptions  about  future 
employment,  mortality  and  the  healthcare  cost  trend. 
Amounts  determined  regarding  the  funded  status  of 
the  plan  and  the  annual  required  contributions  of  the 
Commission  are  subject  to  continual  revision  as  actual 


results  are  compared  with  past  expectations  and  new 
estimates  are  made  about  the  future.  The  schedule  of 
funding  progress,  presented  as  required  supplementary 
information  following  the  notes  to  the  financial 
statements,  presents  multi-year  trend  information 
that  shows  whether  the  actuarial  value  of  plan  assets 
is  increasing  or  decreasing  over  time  relative  to  the 
actuarial  accrued  liabilities  for  benefits. 


32    Continued 


200S 


ANNUAL  REPORT 


(D)  ACTUARIAL  METHODS  AND 
ASSUMPTIONS 

Projections  of  benefits  for  financial  reporting  purposes 
are  based  on  the  substantive  plan  (the  plan  as  understood 
by  the  Commission  and  plan  members)  and  include 
the  types  of  benefits  provided  at  the  time  of  each 
valuation  and  the  historical  pattern  of  sharing  of  benefit 
costs  between  the  Commission  and  plan  members 
to  that  point.  The  actuarial  methods  and  assumptions 
used  include  techniques  that  are  designed  to  reduce 
short-term  volatility  in  actuarial  accrued  liabilities  and  the 
actuarial  value  of  assets,  consistent  with  the  long-term 
perspective  of  the  calculations. 

In  the  June  30, 2007  actuarial  valuation,  the  projected  unit 
credit  cost  method  was  used. The  actuarial  assumptions 
included  a  4.5%  investment  rate  of  return  and  an 
annual  health  care  cost  trend  rate  of  1 0%  -  I  I  %  initially 
reduced  by  decrements  to  an  ultimate  rate  of  5%  after 
5  -7  years.  The  health  care  cost  trend  rate  differs  between 
the  master  medical,  master  medical  prescription  drug, 
and  other  healthcare  plans.The  actuarial  value  of  assets 
was  determined  using  the  market  value  of  investments. 
The  Commission's  unfunded  actuarial  accrued  liability  is 
being  amortized  as  a  level  percentage  of  pay  on  a  closed 
basis.  The  remaining  amortization  period  at  January  I , 
2007  was  thirty  years. 

(lO)   DEPOSIT  AND 

INVESTMENT  RISKS 

The  following  represents  the  Commission's  essential 
risk  information  about  deposits  and  investments  for  the 
years  ended  December  3  1 ,  2008  and  2007. 

(A)   CUSTODIAL  CREDIT  RISK 

Custodial  credit  risk  is  the  risk  that  in  the  event  of  bank 
failure,  the  Commission's  deposits  may  not  be  returned. 
The  Commission  carries  deposits  that  are  fully  insured 
by  FDIC  insurance  or  collateralized  with  securities 
held  by  the  Commission  or  the  Commission's  agent  in 
the  Commission's  name.  The  Commission  also  carries 
deposits  that  are  not  collateralized  and  are  uninsured.The 
Commission  does  not  have  a  formal  policy  for  managing 


custodial  credit  risk  of  deposits.  As  of  December  3  I , 
2008  and  2007,  the  bank  balances  of  uninsured 
and  uncollateralized  deposits  totaled  approximately 
$  1 0,6 1 9, 1 79  and  $8, 1  65,73  I ,  respectively 

Further;  all  of  the  Commission's  investments  are  held  by 
a  third-party  in  the  name  of  the  Commission. 

(B)   INVESTMENT  POLICY 

Investment  of  Commission  funds  is  governed  by  federal 
and  state  law  and  is  restricted  to  permitted  investments 
as  defined  by  the  Commission's  General  Revenue  Bond 
Resolution  and  Supplemental  Resolutions.  Revenues 
generated  from  the  investment  of  Commission  funds 
reduce  the  amount  the  Commission  must  charge 
to  its  customers,  while  any  investment  losses  would 
negatively  affect  the  Commission's  general  rates  and 
charges.  Consequently  the  Commission  shall  at  all  times 
maintain  a  fully  invested,  diversified  portfolio  with  the 
objective  of  achieving  the  highest  yield  that  is  attainable 
in  conjunction  with  a  very  low  risk  of  loss  of  capital. 
The  basic  criteria  that  will  be  used  in  making  investment 
decisions  include  the  evaluation  of  risk/reward  tradeoffs, 
historical  price  spreads  between  different  securities,  the 
slope  of  the  yield  curve  and  the  anticipated  cash  flows  of 
the  different  investment  accounts  of  the  Commission. 

Current  permitted  Investments  under  the  General 
Revenue  Bond  Resolution  include: 

1 .  Any  bond  or  other  obligation  to  which  principal 
and  interest  are  unconditionally  guaranteed  by 
the  United  States  of  America. 

2.  Any  bond  or  other  obligation  of  any  state,  agency 
or  local  government  unit  of  any  state  which  are: 

A.  noncallable 

B.  fully  collateralized  by  fund  consisting  of  cash, 

bonds  or  obligations  of  one  of  the  above. 

3.  Public  Housing  bonds  which  are  secured  by  the 
United  States  of  America,  certain  notes  issued 
by  public  agencies  or  municipalities  fully  secured 
by  the  United  States  of  America  or  obligations 
issued  by  State  or  public  agencies  or  municipalities 
carrying  the  highest  bond  rating. 


33 


4.  Obligations  of  any  state  to  which  the  full  faith 
and  credit  of  the  state  is  pledged  and  are  within 
the  two  highest  bond  ratings. 

5.  Prime  Commercial  Paper  rated  A  -  I  or  P  -  I . 

6.  Shares  of  a  money  market  fund  which  is  open 
ended  and  rated  A  or  better  or  a  money  market 
fund  of  banks  meeting  certain  criteria. 

7.  Certificates  of  Deposits  issued  by  FDIC  banks 
which  are  fully  secured  by  obligations  described 
in  I  or  2  above. 


8.  Repurchase  Agreements  fully  collateralized  by 
obligations  described  in  I  or  2  above. 

9.  Futures  contracts  traded  on  exchange  for  1 ,  2,  3, 
and  4  above. 

A  single  investment  can  not  be  more  than  $15  million 
and  can  only  be  purchased  once.  Further  all  investments 
of  the  Commission  are  held  in  the  Commission's  name 
by  third-party 


(C)   INTEREST  RATE  RISK 

The  following  is  a  listing  of  the  Commission's  fixed  income  investments  and  related  maturity  schedule  (in  years)  as 
of  December  3  1 ,  2008  and  2007: 


2008 


Investment  type 


U.S.  government  and  agency 

obligations 
Repurchase  agreements 
Institutional  money  market 

investment  funds 


Investment  type 

U.S.  government  and  agency 

obligations 
Repurchase  agreements 
Institutional  money  market 

investment  funds 


Fair  value 

Less 
than  1 

1-5 

6-10 

More 
than  10 

$ 

76,591,629 
11,746,250 

92,989,596 
181,327,475 

Fair  value 

148,191,235 
11,746,250 

19,234,681 
179,172,166 

1,786 

92,989,596 
92,991,382 

14,095,937 

6,790,182 

55,703,724 
11,746,250 

$. 

14,095,937 

2007 

6,790,182 

67,449,974 

Less 
than  1 

1-5 

6-10 

More 
than  10 

$ 

56,492,884 

19,234,681 

75,727,565 

26,265,049 

54,636,142 

10,797,160 
11,746,250 

$_ 

26,265,049 

54,636,142 

22,543,410 

The  Commission's  guidelines  do  not  specifically  address  limits  on  maturities  as  a  means  of  managing  its  exposure  to 
fair  value  losses  arising  from  increasing  interest  rates, 

(D)   CREDIT  RISK 

The  Commission's  fixed  income  investments  as  of  December  3  1 ,  2008  and  2007  were  rated  by  Standard  and  Poor's 
and/or  an  equivalent  national  rating  organization  and  the  ratings  are  presented  below  using  the  Standard  and  Poor's 
rating  scale; 


34 


200S 


ANNUAL  REPOI 


2008 


Investment  type 


U.S.  government  and  agency 

obligations 
Repurchase  agreements 
Institutional  money  market 

investment  funds 


Fair  value 


$      64,570,602 
11,746,250 

92,989,596 
$     169,306,448 


AAA 


55,391,744 

92,989,596 
148,381,340 


AA 


Not  rated 

9,178,858 
11,746,250 

20,925,108 


2007 


Investment  type 


U.S.  government  and  agency 

obligations 
Repurchase  agreements 
Institutional  money  market 

investment  funds 


Fair  value 


$     147,405,596 
11,746,250 

19,234,681 

$     178,386,527 


AAA 


AA 


147,405,596 

19,234,681 
166,640,277 


Not  rated 


11,746,250 


11,746,250 


As  of  December  31,  2008  and  2007,  the  Commission  had  $12,021,027  and  $785,639  of  investments  that  are 
explicitly  guaranteed  by  the  U.S.  government  that  are  not  included  in  the  above  schedules,  respectively. 


(E)   CONCENTRATION  RISK 

The  Commission  has  two  investments,  at  fair  value, 
that  exceed  5%  of  the  Commission's  investments  as 
of  December  3 1 ,  2008  and  2007.  Each  investment 
approximates  $1  I  million  and  is  invested  in 
U.S.  government  agency  obligations. 

(11)  LEASE  COMMITMENTS 

The  Commission  leases  office  space  and  equipment 
under  various  leases  that  have  been  accounted  for  as 
operating  leases.  The  payments  received  under  these 
leases  are  not  material. 

Rent  expense  under  operating  leases  amounted  to 
$  I  1 4,760  and  $  1 04,362  in  2008  and  2007,  respectively 

(12)  COMMITMENTS 

The  capital  improvement  program  is  currently  in 
progress.  As  part  of  this  program,  the  Commission  has 
entered  into  a  number  of  contracts  for  the  design  and 
construction  of  its  infrastructure.  Commitments  under 
these  contracts  aggregate  approximately  $71.8  million 
as  of  December  3 1 ,  2008.  Capital  improvements, 
primarily  related  to  enhance  the  operation  of  the  water 


and  sewer  system  projects  including  controlling  future 
pollution  to  Boston  Harbor  and  neighboring  waterways, 
are  expected  to  aggregate  approximately  $  1 40.2  million 
for  2009  through  2010.  Of  this  amount,  approximately 
$1  19.3  million  represents  extension  and  improvement 
projects  and  $20.9  million  represents  renewal  and 
replacement  projects.  The  extension  and  improvement 
projects  will  be  18%  funded  by  federal,  state  and 
Massachusetts  Water  Resources  Authority  grants  and 
loans.  The  remaining  amounts  will  be  funded  from  the 
Commission's  commercial  papen  bond  proceeds  and 
operating  revenues. 

(13)   RISK  MANAGEMENT  AND 
OTHER  INSURANCE 

The  Commission  carries  self-insured  retention  limits 
for  claims  filed  under  workers'  compensation  and 
general  liability  and  completely  self  insures  for  all 
unemployment  benefits.  The  workers'  compensation 
self-insured  retention  limit  is  $750,000  per  claim  and 
is  supplemented  with  $25  million  in  excess  coverage 
purchased  through  an  outside  carrier  For  general  liability, 
the  Commission's  self-insured  limits  are  $1  million  per 
occurrence,  $2.5  million  aggregate,  and  is  subordinate  to 


35 


$10  million  of  excess  coverage  purchased  through  an  outside  carrier  Under  the  sections  of  the  Model  Water  and 
Sewer  Act,  the  Comnnission's  tort  liability  is  capped  at  $100,000  per  claimant. 

The  Commission  maintains  other  insurance  coverage  as  follows: 


Policy  type 


Coverage 


Vehicles 


Property 

Public  officials 

Fiduciary 

Crime 


Combined  single  limit  of  $1  million/accident, 

there  is  a  $100,000/occurrence  deductible  for  bodily  injury 

and  property  damage. 
Aggregate  limit  of  $120.8  million  on  Harrison  Ave 

with  other  sublimits  at  other  BWSC  facilities. 
Coverage  of  $3  million;  $100,000  self-insurance  retention 
$5.0  million  coverage;  with  $10,000  deductible  per  claim. 
Employee  dishonesty  coverage  of  $5  million 


Insurance  claims  for  all  policies  have  not  exceeded  coverage  by  a  material  amount  in  the  past  three  years. 


The  Commission  participates  in  the  City's  health  benefits 
plans  for  which  the  City  assesses  monthly  premiums  to 
the  Commission  based  on  current  enrollments. 

Liabilities  for  self-insured  claims  are  reported  if  it 
is  probable  that  a  loss  has  been  incurred  and  the 
amount  can  be  reasonably  estimated.  The  Commission 


has  established  a  liability  based  on  historical  trends 
of  previous  years  and  attorney's  and  independent 
insurance  reserve  appraiser's  estimates  of  pending 
matters  and  lawsuits  in  which  the  Commission  is 
involved.  Unemployment  claims  paid  during  2008  and 
2007  were  immaterial. 


Changes  for  the  years  ended  December  3  1 ,  2008  and  2007  are  as  follows: 


Beginning  balance  of  reserves 

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

Workers'  compensation 
General  liability 
hicurred  claims 

Ending  balance  of  reserves 


2008 


2,469,311 


(454,683) 
(36,354) 
1,419,041 

3,397,315 


2007 


2,294,914 


(267,453) 

(156,150) 

598,000 


2,469,311 


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


(14)   CONTINGENCIES 

The  Commission  is  involved  in  ordinary  and  routine 
litigation  and  other  matters  related  to  its  operations  and 
the  establishment  of  rates.  Management  believes  that 
the  resolution  of  these  matters  will  not  materially  affect 
the  financial  position  of  the  Commission. 

The  Commission  has  received  federal  and  state  grants 
for  specific  purposes  that  are  subject  to  review  and 

36 


audit  by  the  grantor  agencies.  Such  audits  could  lead  to 
requests  for  reimbursement  to  the  grantor  agency  for 
expenditures  disallowed  under  terms  of  the  grant. The 
Commission  believes  such  disallowances,  if  any  will  not 
be  significant. 

The  Commission,  along  with  MWRA  and  the 
Commonwealth  of  Massachusetts,  is  a  defendant  in  The 
Federal  Boston  Harbor  Case.  Management  believes 
that  the  Commission's  extensive  capital  improvement 


200S 


ANNUAL  REPORT 


program  (see  note  12)  addresses  probable  actions 
that  the  Connmission  may  be  required  to  undertal<e 
in  connection  with  this  litigation.  Additionally,  the 
Commission  is  likely  to  bear,  either  directly  or  through 
future  assessments  of  the  MWRA,  a  substantial  portion 
of  the  financial  costs  involved.  As  of  December  3 1 , 
2008,  the  remaining  corrective  actions  relate  primarily 
to  the  combined  sewer  overflow  (CSO)  requirements 
regarding  the  control  of  future  pollution.  Overall  costs 
for  all  parties  are  estimated  to  be  approximately 
$8 1  1 .4  million,  however;  the  extent  of  the  Commission's 
liability  for  these  costs  cannot  be  determined. 

To  the  extent  Boston  Harbor  litigation  concerns  an 
ongoing  capital  improvement  program  which  results  in  a 
prevention  control  measure,  the  Commission  is  therefore 
not  required  to  report  the  litigation  matter  as  an 
obligating  event  pursuant  to  GASB  49  paragraph  4(d)  as 
of  December  3  1 ,  2008. The  Commission  has  evaluated 


other  pollution  remediation  events  and  will  make  a 
separate  disclosure  in  footnote  15  for  applicable  events 
and  liabilities  pursuant  to  GASB  49. 

(15)   POLLUTION  REMEDIATION 
OBLIGATIONS 

GASB  Statement  No.  49,  Accounting  and  Financial 
Reporting  by  Employers  for  Pollution  Remediation  Obligations, 
requires  governments  to  reasonably  determine  potential 
polluted  sites  and  provides  guidance  regarding  when  to 
recognize  Pollution  Remediation  Obligations  (PRO)  as  a 
liability  The  Commission  determined  that  the  pollution 
remediation  obligation  (PRO)  liability  as  of  December  3  I , 
2008  and  2007  as  well  as  the  pollution  remediation 
obligation  payments  made  during  2008  and  2007  were 
not  material  to  the  Commission's  financial  statements, 


37 


SCHEDULE  OF  FUNDING  PROGRESS  -  OPEB 

Required  Supplementary  Information 
December  3  1 ,  2008  (Unaudited) 


Actuarial 
valuation  date 

$ 

Actuarial 
value  of 
assets  (a) 

Actuarial 

accrued 

liability  (b) 

85,588,894 
135,023,636 

Unfunded 
(b-a) 

Funded  ratio 

(a/b) 

Covered 
payroll  (c) 

23,410,932 
23,691,142 

((b-a)/c) 

6/30/2005 
6/30/2007 

85,588,894 
135,023,636 

— %    $ 

365.6% 
569.9 

See  accompanying  independent  auditors'  report. 
38 


200S 


ANNUAL  REPOR 


BOSTON  WATER  AND  SEWER  COMMISSION 

Supplemental  Schedule  of  Revenues  and  Expenses  -  Rate  Basis 
Years  ended  December  3  1 ,  2008  and  2007 


Schedule! 


Revenues: 

Water  revenue 
Sewer  revenue 


Subtotal 


Less: 

Adjustments 
Discounts 
Bad  debt 

Subtotal 

Net  billed  charges 

Prior  year  surplus 
Miscellaneous  revenues: 

Late  charge  revenue 

hivestment  income 

Fire  pipe  revenue 

Other  income 

Total  revenues 

Direct  operating  expenses: 
Salaries  and  wages 
Overtime  wages 
Fringe  benefits 
Supplies  and  materials 
Repairs  and  maintenance 
Utilities 

Professional  services 
Space  and  equipment  rentals 
Other  services 
Insurance 
Travel  and  training 
Damage  claims 
biventory 
Capital  outlay 


Total  direct  operating  expenses 


Nonoperating  expenses: 
MWRA  assessment 
Capital  improvements 
Principal  payments 
biterest  expense 
Deposits  to  reserve  funds 
SDWA  assessment 


Total  nonoperating  expenses 
Total  current  expenses 
Current  year  rate  surplus 


2008 


2007 


116,091,766 

112,633,394 

144,823,011 

140,286,933 

260,914,777 

252,920,327 

5,659,378 

6,329,825 

870,252 

866,197 

42,751 

138,479 

6,572,381 

7,334,501 

254,342,396 

245,585,826 

80,754 

134,108 

1,177,810 

943,257 

5,920,276 

7,886,944 

3,720,058 

3,595,899 

4,846,460 

5,367,899 

270,087,754 

263,513,933 

31,506,257 

28,138,771 

616,922 

613,197 

6,904,198 

6,603,848 

2,479,705 

2,283,837 

5,284,662 

6,582,756 

1,304,442 

1,067,410 

2,708,608 

2,691,028 

117,981 

106,982 

1,245,571 

1,256,064 

704,815 

766,680 

40,999 

53,825 

303,336 

125,833 

22,927 

26,304 

83,798 

94,642 

53,324,221 

50,411,177 

165,663,201 

159,736,851 

8,592,973 

13,758,716 

21,849,309 

19,969,755 

14,408,771 

15,345,212 

5,960,777 

3,971,000 

228,353 

240,468 

216,703,384 

213,022,002 

270,027,605 

263,433,179 

60,148 

80,754 

This  supplement  schedule  presents  the  Commission's  revenues  and  expenses  on  the  basis  that  is  presented  in  the 
Commission's  budget  and  rate-setting  document.  See  footnote  I  in  the  notes  to  the  basic  financial  statement  for  the 
differences  between  this  supplemental  schedule  and  GAAP 

See  accompanying  independent  auditors'  report. 

39 


ANNUAL  REPORT 


2008 


boston  water  and 
Sewer  Commission 


BOSTON  WATER  AND  SEWER  COMMISSION 
980  HARRISON  AVENUE 
BOSTON,  MA  02119 
WWW.BWSC.ORG