AGENDA

Report of the Chair

No report.

Report of the Executive Director

Fred Laskey, MWRA Executive Director, made a presentation to the Board on the Governor's most recent cut to the Commonwealth Sewer Rate Relief Fund, which is the source of debt service assistance (DSA) that the Authority uses to manage rate increases. DSA funding has been reduced twice for FY03, for a total loss of $47.2 million for MWRA. This represents 10% of the Authority's annual revenue, with 60% of the annual budget dedicated to paying debt.

Prior to the second cut, MWRA had reduced the number of filled positions by 23% since 1997. A number of factors contributed to this, including the Early Retirement Program offered this year, privatization of MWRA's pellet plant, competitive bidding for electricity, and the Black & Veatch Competitiveness Study.

Despite the workforce reduction, MWRA budgets continue to increase. Federal mandates imposed by environmental regulators result in increased bond indebtedness, which puts pressure on the operating budget.

Mr. Laskey clarified that MWRA does not have a "Rainy Day Fund," which is often communicated through the press and the Administration. MWRA has a Rate Stabilization Fund with reserves that are dedicated through FY08 to manage rates and continue securing low bond ratings. Using the reserves to solve the FY03 DSA crisis would lead MWRA to junk bond status and push the problem out to future years.

Mr. Laskey recommended a three-part approach to the Board: 1) impose a rate increase; 2) use reserves; and 3) reduce expenses.

APPROVALS

Response to FY03 DSA Reduction

The Board voted to hold a meeting of the Board of Directors on December 18, 2002 to hear staff recommendations regarding the FY03 DSA cut and to take whatever action is appropriate. The Board further voted to join the Advisory Board in requesting that the Governor or Legislature seek an advisory opinion from the Supreme Judicial Court, pursuant to article 85 of the Massachusetts Constitution, on whether the Governor's emergency powers gave her legal authority to cut the remaining funding of $38.7 million from the Commonwealth Sewer Rate Relief Fund (Fund).

Mr. Cotter stated that he assumes and hopes MWRA will work with its unions to save jobs while cutting costs. Mr. Laskey responded that he met with the labor coalition when the Governor was considering cutting DSA. Another meeting is scheduled to discuss feasible alternatives to layoffs.

Mr. Carroll expressed concern that if the Board solves the problem through reserves and other "mild" options, DSA will never again be funded. The Board must find a dramatic way to let the public know the true impact of this cut.

Ms. Pollak asked staff what the impacts of capital expenses are on operations staff and questioned whether MWRA should seek extensions from the courts and regulatory agencies on mandated projects. "Unless there is a significant reaction from this Board, the consumer won't truly understand the impact," she added.

Ms. Turner stated that if MWRA begins layoffs, it will be unable to fulfill its mission. She added that Joseph Favaloro, Advisory Board Executive Director, deserves congratulations for his leadership in exploring and discussing legal action. "We need this money and we are entitled to it," stated Ms. Turner.

Mr. MacRitchie stated that the Board should not delegate power to Mr. Laskey as Executive Director to unilaterally make decisions on layoffs, reorganization and consolidations. The Board should be prepared to meet twice monthly or even weekly for the immediate future to allow members to make the tough decisions. All Board members agreed that they want to avoid layoffs however possible.

Mr. Mannering stated that he does not see how MWRA will avoid layoffs, considering that nearly all state agencies are making them. "Layoffs are part of the solution. [We] will have to do a combination of everything. Reserves cannot be drained because MWRA's bond rating will be ruined," he added.

Ms. Turner stated that although other state agencies have made layoffs, MWRA has barely refilled the positions that opened from the Early Retirement Program. Additionally, while other state agencies have lost funding, MWRA has been targeted twice in FY03. The Governor first vetoed $16.8 million of the Fund in the final FY03 state budget. With the most recent reduction, MWRA has lost $47.2 million in DSA for FY03 alone. "We should not cut beyond what we need to perform our mission," added Ms. Turner.

Mr. Mannering asked staff to respond to the Black & Veatch (B&V) Competitiveness Study, which concluded that MWRA could operate with fewer employees. Staff responded that the Authority is on target to reach B&V's recommended staffing levels for FY03. The recommendation to decrease the workforce by 140 through FY07 is based on increased automation and a reduced level of capital spending. Mr. Favaloro noted that a number of functional areas exceed their recommended staffing levels, while other keys areas are beneath their optimal level.

Mr. MacRitchie reiterated that "[w]e may have to make some very tough decisions and I am ready to do that. We might have to lay off some people and curtail some projects. We might have to go further than we want to go. That is what happens in a crisis."

Lease Issues at Fore River Staging Area

The Board voted to authorize staff, on behalf of the Authority, to send a letter to the United States Naval Shipbuilding Museum, the current tenant at the Fore River Staging Area (FRSA), notifying it that because the Museum is in default, MWRA does not intend to extend its lease term when it expires on June 30, 2003. The Museum has been in default for twelve months and its lease renewal option is based on satisfying a zero-default period of twenty-four months.

The Board further voted to authorize the Executive Director, on behalf of the Authority, to amend the sublease with the Massachusetts Bay Transportation Authority to change the payment calculation for the rent related to parked cars.

Delegation of Authority to Execute a Contract for the Purchase and Supply of Electric Power to Deer Island

[Competitive electricity procurement for Deer Island was initiated to replace the current electricity supply contract with TransCanada Power that expires on March 31, 2003. To avoid purchasing power under "default service pricing" a new supply contract must be obtained. As with the last procurement, MWRA will be required to notify the selected bidder within a few hours of bid submittals in order to lock-in a bid price in a market that experiences hour-by-hour price changes.]

The Board voted to authorize the Executive Director, on behalf of the Authority, to execute a contract with the lowest responsive bidder for the supply of electric power to Deer Island, either for the period of April 1, 2003 through September 30, 2003, or for the period of April 1, 2003 through September 30, 2004.

Appointment of Kate Murray as Proxy for the Fore River Railroad Corporation Meeting of the Stockholders

The Board, as holder of all outstanding stock of the Fore River Railroad Corporation (FRRC), voted to appoint Kate Murray with the power of substitution to vote as proxy at the next annual meeting and any special meeting of the stockholders for the FRRC. Additionally, the Board voted to direct the proxy to elect the following FRRC Board members: Fred Laskey, Michael Hornbrook, John Vetere, Joseph MacRitchie, Maggie Debbie, Nancy Kurtz, Kenneth Wissman, and Elizabeth Murray.

Amendment to the Twelfth Supplemental Bond Resolution, Tax Exempt Commercial Paper Series/Letter of Credit

The Board voted to amend the Twelfth Supplemental Bond Resolution authorizing the establishment of a Tax Exempt Commercial Paper program by replacing Morgan Guaranty Trust of New York (Morgan) with Bayerische Landesbank (BLB) as the provider of a Letter of Credit. The Board further voted to authorize the Executive Director, Chief Financial Officer or Treasurer to execute an irrevocable Letter of Credit with BLB for up to five years for an annual fee not to exceed $750,000. Additionally, the Board voted to authorize the Executive Director, Chief Financial Officer or Treasurer to execute a seventy-five day extension of the current Letter of Credit agreement with Morgan.

Staff stated that Morgan Bank has been downgraded in recent years. It is no longer the premiere backer of commercial paper and letters of credit and has expressed little interest in continuing its role in the area. BLB was the lowest bidder and has a strong reputation among German banks.

Amendment and Extension to Standby Bond Purchase Agreement, 1999 Series A Variable Rate Bonds

The Board voted to authorize the replacement of Commerzbank on a Standby Bond Purchase Agreement for the 1999A Series variable rate bonds and increase participation by Scotia Bank and Dexia Credit Local in said Agreement. The Board further voted to authorize the Executive Director, Chief Financial Officer or Treasurer to extend the Standby Bond Purchase Agreement for up to three years in an amount not to exceed $558,000.

Transmittal of Proposed FY04-06 Capital Improvement Program Budget to Advisory Board

[Recent discussions at the State House concerning DSA complicate MWRA's capital budget decision-making process, as further DSA reductions necessitate changes to planned capital spending. However, in order to begin the capital budgeting process and allow sufficient time for input from the Advisory Board and the Capital Improvement Program (CIP) Review Committee, staff believes it is important to proceed with transmittal of the Proposed CIP to the Advisory Board.]

The Board voted to approve transmittal of the Proposed FY04-06 CIP to the Advisory Board for its review and comment. The Board will consider the CIP after the Advisory Board completes its review and offers comments and recommendations. During the Advisory Board's review period, the CIP Review Committee will continue discussions on the capital-spending cap.

The Proposed CIP recommends spending of $1.44 billion over the next ten years, net contingency allowances. Over half that amount ($771 million) would be spent in the next three years. The total budget would increase by more than one quarter of one billion dollars ($253.5 million), including $128 million for new projects and $60 million for inflation adjustments.

Staff stated that the October financials were not provided to the Board for this meeting because of the DSA reduction. Staff explained that it is delaying the release of the October numbers until a clearer picture on the impacts of the DSA cut can be presented to the Board. Mr. Favaloro stated that the Board should be provided any information sooner than later.

Elimination of Vacant Positions

The Board voted to authorize removal of seventy-nine positions from the Position Control Register. There will be no financial impact on the FY03 Current Expense Budget.

MetroWest Water Supply Tunnel - Water Supply Contingency Plan

The Board voted to approve an incentive program for property owners in the MetroWest Water Supply Tunnel (MWWST) - Water Supply Contingency Plan (Plan) of $2,000 per owner in exchange for foregoing well testing and rehabilitation of their drinking water supply wells, at a total estimated cost not to exceed $175,000. The Plan was developed to address impacted residential wells that are located along the alignment of the MWWST.

November Position Control Register Amendments - FY03

The Board voted to approve amendments to the Position Control Register.

Extension of Two Employment Contracts at Deer Island

The Board voted to approve extensions to the following MWRA employment contracts:

1. Mr. James Bonomi, Project Engineer, PICS/PLC Control, for the six-month period of January 1, 2003 to June 30, 2003, increasing the hourly rate from $38.19 to $39.34, for a total compensation not to exceed $38,356.50;

2. Mr. Paul DiLuca, Hazardous Waste Specialist, for the twenty-one week period of February 7, 2003 to June 30, 2003, increasing the hourly rate from $35.70 to $36.77, for a total compensation not to exceed $28,956,48.

CONTRACT AWARDS

Disinfection of MWWST: Barletta Heavy Division, Inc., Contract 6204

The Board voted to approve the award of Contract 6204, Disinfection of MWWST, to the lowest responsive and eligible bidder, Barletta Heavy Division, Inc. The Board further voted to authorize the Executive Director, on behalf of the Authority, to execute said Contract in the bid amount of $3,384,444, with a contract term of 305 days from the Notice to Proceed.

The FY03-05 CIP includes $3,000,000 for Contract 6204, resulting in a $384,444 shortfall. Staff states in its summary that if this additional amount should cause the CIP budget to exceed the ten-year spending cap or the cap for any of the first three years, reductions will be made elsewhere.

CONTRACT AMENDMENTS/CHANGE ORDERS

Integrated Financial, Procurement and Human Resources/Payroll Management Systems: Lawson Associates, Inc., Contract 6362, Amendment 7

The Board voted to authorize the Executive Director, on behalf of the Authority, to approve Amendment 7 to Contract 6362, with Lawson Associates, Inc., Integrated Financial, Procurement and Human Resources/Payroll Management Systems, extending the contract term by six months, from December 31, 2002 to June 30, 2003.

Sludge Processing Facility Expansion: Tighe & Bond, Contract 5667, Amendment 10

The Board voted to authorize the Executive Director, on behalf of the Authority, to approve Amendment 10 to Contract 5667, with Tighe & Bond, Inc., Sludge Processing Facility Expansion, extending the time for completion by twelve months, from October 5, 2002 to October 5, 2003.

Construction Management and Resident Inspection Services for MWWST: Stone & Webster Massachusetts, Inc., Contract 5284, Amendment 6

The Board voted to authorize the Executive Director, on behalf of the Authority, to approve Amendment 6 to Contract 5284, with Stone & Webster Massachusetts, Inc., Construction Management and Resident Inspection Services for MWWST, with The Shaw Group, Inc. as guarantor, in an amount not to exceed $1,880,106.

Over the last three years the project scope has been altered and expanded. As a result, Amendment 6 marks the fourth time that Contract 5284 has been adjusted for staffing levels.

Amendment 6 increases the cumulative amendment total to $6,773,293, added to the original contract amount of $31,593,033, for a revised contract total of $38,366,326. The FY03-05 CIP contains $39,386,000 for this Contract.

Walnut Hill Water Treatment Plant, Wachusett Aqueduct Rehabilitation: United Gunite Construction Co., Inc., Contract 5522, Change Order 13

The Board voted to authorize the Executive Director, on behalf of the Authority, to approve Change Order 13 to Contract 5522 with United Gunite Construction Company, Inc., Walnut Hill Water Treatment Plant (WHWTP) - Wachusett Aqueduct Rehabilitation, in an amount not to exceed $144,000. The Board further voted to authorize the Executive Director to approve additional change orders as may be needed to Contract 5522 in amounts not to exceed the aggregate of $100,000.

Change Order 13 will address longitudinal crack repairs and construction of an air release structure. It increases the cumulative change order total to $1,930,418, added to the original contract amount of $21,435,807, for a revised contract total of $23,366,225. The FY03-05 CIP contains $23,089,000 for Contract 5522, resulting in a $277,225 budget shortfall. Staff states in its summary that if this additional amount causes the CIP budget to exceed the ten-year spending cap or the cap for any of the first three years, reductions will be made elsewhere.

WHWTP, Ozonation Treatment Facilities: Barletta-Shea, Joint Venture, Contract 6489, Change Order 31

The Board voted to authorize the Executive Director, on behalf of the Authority, to approve Change Order 31 to increase Contract 6489 with Barletta-Shea, Joint Venture, WHWTP - Ozonation Treatment Facilities, in the amount of $1,101,170. The Board further voted to authorize the Executive Director to approve additional change orders as may be needed to Contract 6489 in amounts not to exceed the aggregate of $250,000.

Change Order 31 has three components: to 1) furnish and install chemical piping; 2) make ozone system changes; and 3) revise certain utility locations. Ms. Hicks stated that this Contract is only 40% complete, yet is already 6% over on change orders. Staff responded that an employee change order review committee has been formed. It will focus particularly on the WHWTP and will forward its review results to the Contractor.

Change Order 31 increases the cumulative change order total to $7,324,279, added to the original contract amount of $116,844,000, for a revised contract total of $124,168,279. The FY03-05 CIP contains $122,718,000 for Contract 6489, resulting in a $1,450,279 budget shortfall. Staff states in its summary that if this additional amount should cause the CIP budget to exceed the ten-year spending cap or the cap for any of the first three years, reductions will be made elsewhere.

Water Main Rehabilitation, Boston Low Service Phase III: P. Caliacco Corp., Contract 6044, Change Order 13

The Board voted to authorize the Executive Director, on behalf of the Authority, to approve Change Order 13 to increase Contract 6044, with P. Caliacco Corp., Water Main Rehabilitation, Boston Low Service Phase III, in the amount of $54,698.59. The Board further voted to authorize the Executive Director to approve additional change orders as may be needed to Contract 6044 in amounts not to exceed the aggregate of $250,000 and 180 calendar days.

Change Order 13 will fund joint bonding work to provide stray current protection along water mains. It increases the cumulative change order total to $1,339,836.94, added to the original contract amount of $12,271,235, for a revised contract total of $13,611,071.94. The FY03-05 CIP includes $13,565,000 for Contract 6044, resulting in a $46,071.94 shortfall. Staff states in its summary that if this additional amount should cause the CIP budget to exceed the ten-year spending cap or the cap for any of the first three years, reductions will be made elsewhere.

Study to Improve Mutual Aid Interconnections Between Community Water Distribution Systems, Worcester Polytechnic Institute, Contract 6117E, Amendment 4

The Board voted to authorize the Executive Director, on behalf of the Authority, to approve Amendment 4 to Contract 6117E, Study to Improve Mutual Aid Interconnections Between Community Water Distribution Systems, with Worcester Polytechnic Institute, increasing the contract term by six months, from December 31, 2002 to June 30, 2003.

INFORMATION REPORTS

Update on Sale of Parcel at FRSA

MWRA received six purchase bids for a portion of the FRSA property. Staff is meeting with the highest bidder, Acorn Management, to determine how it would finance a purchase and meet regulatory requirements. Acorn bid over $5.6 million, with the second highest bidder at $2.25 million.

There are legislative and community concerns about some of the proposals. If its bid is accepted, Acorn will build a "flotel" (floating hotel) at the property, a plan for which the surrounding community has not yet expressed support. It is also concerned about the second highest bidder, Eastern Salt Company, which intends to use the property to store salt. Because it is waterfront property, community leaders fear the salt may pose a negative environmental impact due to runoff.

The Mayor of Quincy does not believe this is the appropriate time to sell the FRSA property and has asked the Authority to slow down the process because the adjacent land will eventually be sold by MWRA. It is the Mayor's view that delaying the sale of the FRSA will increase the value of both properties. Mr. MacRitchie stated that he believes the Mayor's position deserves consideration, since the legislative approval that MWRA needs to make the sale seems uncertain.

This summary does not include every item discussed by the Board, nor the full extent of the discussions. Please contact Nathalie Dailida at the Advisory Board Office with questions, comments and requests for additional information.