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APPROPRIATION COMMITTEE-2019 ATM the enterprise funds, although appropriated separately under the operating budget, have been included for completeness; and (3) the charges to the Water and Wastewater Enterprise Funds to fund liabilities for Other Post-Employment Benefits ("OPEB"), although appropriated separately under Article 10, have also been added for completeness. The principal operating costs of the water and wastewater enterprise funds are described briefly below. Operating Costs MWRA Assessments. The largest expense components of both the Water and Wastewater Enterprise Fund budgets are the assessments charged by the Massachusetts Water Resources Authority (MWRA), which now represent 70-75%of the total budget for each fund.The Town will be assessed a share of the MWRA's total FY2019 water and sewer budgets based on the Town's proportionate water and sewer usage in the most recent full calendar year(CY2018), compared with other towns in the MWRA community. Based on the MWRA's preliminary assessments,9 the MWRA increases for FY2019 will be 4.02% for water and 4.63%for wastewater, as set forth in the table above, for a combined increase of 4.34%. Direct Town Costs. In addition to the MWRA assessments,the expenses of the Water and Wastewater Fund budgets include direct costs incurred by the Town,primarily for: (1)the wages and salaries of the employees in the DPW's Water and Sewer Divisions, (2) the expenses of the water and sewer maintenance activities and equipment, and (3) debt service on prior borrowings for water and sewer capital improvements. Indirect Town Costs. The Water and Sewer Enterprise Fund budgets also include indirect costs for services provided by other Town departments to support water and sewer operations, such as insurance costs(health and liability),retirement funding, engineering costs, and the cost of services provided by the Comptroller, the Management Information Systems (MIS) Department, and the Revenue Department. Since 2006, the Town has conducted periodic studies of the appropriate level of indirect costs and has adjusted the charges to the enterprise funds accordingly. The transfer of the Utility Billing Manager to a direct cost of the Water and Sewer Funds has lowered somewhat the indirect expenses. As can be seen from the table above increases in the DPW's operating costs for both the water and wastewater funds are relatively modest this year, substantially less than last year. MWRA assessment in- creases are somewhat higher this year than the relatively minimal increases last year(last year's water fund assessment actually decreased by 1%)but are nonetheless reasonable at about 4% each. There is a signifi- cant decrease in debt service costs for the water fund this year which offsets much of the MWRA assessment increase.This decrease results from the judicious use of retained earnings to support the water fund's capital costs over the past five years or so, as this Committee has recommended(see Table on Retained Earnings below). On a combined basis, the total operating expenses of the two funds are going up only 2.93%, about the same as last year. This means that when FY2019 water and sewer rates are set in the fall, rate increases should be modest, assuming that water usage projections remain about the same as, or are higher than, last year. (The combined rate increase would be somewhat higher if the Town transitioned to using cash capital instead of debt financing for some or all of the water system improvements,see discussion of Article 17.) Rate-Setting and Retained Earnings As discussed in Appendix B,the State statute governing enterprise funds, G.L. c. 44, § 53F'/z,requires that accumulated surpluses resulting from the operations of an enterprise fund,referred to as retained earnings, remain with the fund as a reserve, and that they be used only for capital expenditures of the enterprise, subject to appropriation, or to reduce user charges.Deficits must be funded with existing reserves or,in the absence of such reserves,made up in the following year's rates.The Town's policy is to maintain a balance ' Final MWRA assessments issued in June, typically a bit smaller than the preliminary assessments, are used to set water and sewer rates during the Town's annual rate-setting process in the fall.Appropriations for MWRA expenses are normally adjusted to reflect the final assessments if a special town meeting is held in the fall. 23