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APPROPRIATION COMMITTEE REPORT TO NOVEMBER 2011 STM
<br /> FY07 of appropriating at the annual town meeting some of the resulting "excess" retained earnings4 to
<br /> lower those balances and provide rate relief, as shown in the table below.
<br /> Retained Earnings:Appropriations for Rate Relief and Year-End Balances
<br /> FY07 FY08 FY09 FY10 FY115 FY12
<br /> Water
<br /> Rate Rel.App. $500,000 $362,570 $463,046 $525,000 $450,000 $450,000
<br /> End Balance $2,496,655 $2,537,249 $2,113,729 $1,622,052 $1,950,000
<br /> Sewer
<br /> Rate Rel.App $0 $0 $0 $625,000 $400,000 $300,000
<br /> End Balance $2,137,540 $2,763,179 $1,831,967 $1,525,612 $1,120,000
<br /> Cornbined
<br /> Rate Rel.App. $500,000 $362,570 $463,046 $1,150,000 $850,000 $750,000
<br /> End Balance $4,634,195 $5,300,428 $3,945,696 $3,147,664 $3,070,000
<br /> Since many of these rate-suppressing factors were temporary in nature, they could not keep rate increases
<br /> low indefinitely. In fact, the 1.7% combined rate increase adopted for FY11 turned out to be too low due
<br /> to a rate-setting error. When the FY11 rates were set in the fall of 2010, the usage assumptions that had
<br /> been used to set rates for FY07 through FY10 were updated to reflect the average of actual usages over
<br /> the previous six years. However, an inadvertent error in the interpretation of the metering data resulted in
<br /> an overstatement of water and sewer usages at the higher rate tiers (Tiers 2 and 3) and an understatement
<br /> of the usage projected at the lowest rate tier (Tier 1).6 As a consequence, revenues for FY11 (except for
<br /> irrigation water revenues) came in lower than projected.
<br /> As of the end of FY11, the sewer fund experienced an operating deficit that effectively was drawn from
<br /> that fund's retained earnings. The water fund would have experienced a similar deficit but irrigation water
<br /> billings came in substantially over projection due to the hot and dry summer of 2010, which more than
<br /> offset the loss.
<br /> Because the FY11 rates would have been inadequate to cover the costs of either the water or the sewer
<br /> fund in a year with average rainfall, using corrected usage projections, the rate increase for FY12 effec-
<br /> tively had to be set high enough to make up for this shortfall and account for two years of cost increases.
<br /> Although the projected MWRA and Town costs collectively increased by only 5.8% between FY11 and
<br /> FY12, the rate increases necessary to break even (even after the rate subsidies of$450,000 from water
<br /> 4 Although the Board of Selectmen has yet to adopt a policy for retained earnings in the water and sewer funds,the
<br /> Town Manager has suggested that an appropriate target of retained earnings to maintain for emergency purposes
<br /> would be about 15%of the annual budget,or approximately$1,000,000 per fund.
<br /> s Retained earnings balances as of the end of FY11 are estimated. FY12 appropriations are before the$200,000
<br /> supplemental water fund appropriation requested in this article.
<br /> 6 When bills are prepared for the owners of multi-unit dwellings,which are typically serviced by a single meter,it
<br /> has been the Town's practice to override the tier allocations automatically generated by the MUNIS accounting
<br /> system and to re-calculate the bill as though each resident of the dwelling had a separate meter,thereby lowering the
<br /> water and sewer charges that might be passed on to building tenants. When the historical usage data was extracted
<br /> from the MUNIS system,it was not adjusted to account for this practice.
<br /> The sewer enterprise fund had a reported loss for FY11 of$409,791 (an$809,791 operating deficit excluding the
<br /> $400,000 subsidy appropriated from retained earnings at the 2010 annual town meeting). The water enterprise fund
<br /> had a reported surplus for FY11 of$879,988 (a$429,988 operating surplus excluding the$450,000 subsidy
<br /> appropriated from retained earnings at the 2010 annual town meeting). On a combined basis,the water and sewer
<br /> enterprise funds had a nominal surplus of$470,197 but incurred an operating deficit of$379,803 after excluding the
<br /> $850,000 in rate subsidies from retained earnings.
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