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APPROPRIATION COMMITTEE—2018 ATM
<br /> employees in the DPW's Water and Sewer Divisions, (2) the expenses of the water and sewer mainte-
<br /> nance activities and equipment, and (3) debt service on prior borrowings for water and sewer capital im-
<br /> provements. As noted above, the Utility Billing Manager function will now be a direct cost, which
<br /> bumped up compensation costs.
<br /> Indirect Town Costs. The Water and Sewer Enterprise Fund budgets also include indirect costs for ser-
<br /> vices provided by other Town departments to support water and sewer operations, such as insurance costs
<br /> (health and liability), retirement funding, engineering costs, and the cost of services provided by the
<br /> Comptroller, the Management Information Systems (MIS) Department, and the Revenue Department.
<br /> Since 2006, the Town has conducted periodic studies of the appropriate level of indirect costs and has
<br /> adjusted the charges to the enterprise funds accordingly. The transfer of the Utility Billing Manager to a
<br /> direct cost of the Water and Sewer Funds has lowered somewhat the indirect expenses.
<br /> Rate-Setting and Reserves
<br /> As discussed in Appendix B, the State statute governing enterprise funds, G.L. c. 44, § 53F'/2, requires
<br /> that accumulated surpluses resulting from the operations of an enterprise fund, referred to as retained
<br /> earnings, remain with the fund as a reserve, and that they be used only for capital expenditures of the en-
<br /> terprise, subject to appropriation, or to reduce user charges. Deficits must be funded with existing reserves
<br /> or,in the absence of such reserves,made up in the following year's rates.
<br /> During the early 2000s, difficulties in forecasting usage and other accounting issues resulted in rates be-
<br /> ing set at less than adequate levels in several rate years. This, in turn,reduced the retained earnings in the
<br /> Water and Sewer Enterprise Funds to levels that caused concern. Since 2005, the Town's ability to meas-
<br /> ure and forecast water and sewer usage, and thereby to anticipate revenues and reserve levels, has im-
<br /> proved significantly. This has enabled the Town to restore and stabilize the water and sewer enterprise
<br /> fund reserve balances for each of the two funds to targeted levels of approximately $1,000,000 for each
<br /> fund and, more recently to draw some of the funds down for capital investment as shown in the table be-
<br /> low.
<br /> Retained Earnings:Appropriations and Year-End Balances
<br /> Annual Town Meeting 2013 2014 2015 2016 2017 2018
<br /> Water
<br /> Starting Balance' $2,066,566 $2,234,007 $2,119,458 $1,786,659 $1,800,533 $531,863
<br /> Approp. for Rate Relief 2 $300,000 $250,000 $0 $0 $0 $0
<br /> Bedford, Burlington Mitig3 $200,000 $250,000 $275,000 $131,000 $190,900 $0
<br /> Approp. for Capital4 $750,000 $873,500 $1,015,500 $620,500 $1,095,000 $105,000
<br /> Projected End Balance 3 $816,566 $860,507 $903,958 $1,035,159 $514,633 $426,863
<br /> Wastewater
<br /> Starting Balance ' $1,319,000 $1,990,816 $2,027,941 $1,032,942 $2,270,848 $576,523
<br /> Approp. for Rate Relief2 $100,000 $50,000 $0 $0 $0 $0
<br /> Approp. for Capital4 $200,000 $940,500 $1,390,500 $177,500 $1,290,000 $0
<br /> Projected End Balances $1,019,000 $1,000,316 $637,441 $855,422 $980,848 $576,523
<br /> Certified retained earnings as of the end of the prior fiscal year(as of 6/30/2017 for this year's ATM).
<br /> 2 Appropriations from retained earnings to subsidize the next fiscal year's operating budget.
<br /> 3 In recent years,Lexington has supplied unusually large quantities of water to Bedford as Bedford has worked to correct issues
<br /> with its alternative supplies. More recently, Lexington was called on temporarily to supply water to Burlington.The surplus rev-
<br /> enues resulting from these sales beyond estimates were "earmarked" to mitigate against the future rate impact resulting from
<br /> these extraordinary usages.
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