Bill Would Put Massachusetts Water Authority Under a State Department, Advisory Board

Just as the Massachusetts Water Resources Authority prepares to float its second major bond issue for the $6.7 billion cleanup of Boston Harbor, a familiar monster has resurfaced; legislation to end the authority's fiscal independence.

In this incarnation, the monster is called S.B. 1643 and it would subject the water resources authority to the regulations of the state's Department of Public Utilities and to the fiscal oversight of an advisory board. The measure poses a threat to bondholders because it would limit the authority's ability to raise water and sewer rates and charges as necessary to pay debt service.

The measure, which is slated to be the subject of a public hearing tomorrow in Boston, is not the first attempt by Massachusetts citizens or their elected representatives to rein in the authority's ability to raise rates. The Citizens for Limited Taxation, an antitax organization, sought unsuccessfully in a ballot referendum last year to subject the authority to legislative oversight.

This time around, the attempt has a better chance of succeeding, according to Sen. Christopher M. Lane, R-Medfield, one of the bill's sponsors. Mr. Lane said the 53 lawmakers who signed on to the legislation as co-sponsors reflect strong support.

That support, Mr. Lane said, stems from a fundamental inequity at the heart of the Massachusetts Water Resources Authority and the rates and charges it levies on its 60 communities to clean up Boston Harbor. "It's almost like an unfair tax, where we're being forced to take care of a state resource on the backs of the people who happen to use the [MWRA] sewer system."

The legislation would allow the citizens of the 60 communities, through the Massachusetts Water Resources Authority Advisory Board, to control their water and sewer bill.

The advisory board, which represents the authority's 60 customer cities and towns, now can only make recommendations. It would gain the power to approve the authority's budgets.

The power shift could placate residents of the 60 customer cities and towns, who are faced with annual water and sewer rate increases of 36.3% this fiscal year and 31% next year as part of a total water and sewer rate increase of 262% from fiscal 1990 through fiscal 1996.

But it raises thorny legal questions. Bondholders who bought $836 million in the authority's revenue debt last year were informed by an official statement that it had the power to "establish rates and charges for its services and commodities without supervision by other agencies of the commonwealth or any other governmental body and enforce the collection thereof."

Because it would alter that ability, S.B. 1643 would pose legal questions, said Gregory A. Sandomirsky, a lawyer with authority bond counsel Mintz, Levin, Cohn, Ferris, Glovsky and Popeo.

"It does raise serious issues that would need to be researched and analyzed," Mr. Sandomirsky said. "We'd have to do research, if we were asked to form an opinion."

He said it was not clear whether passing that kind of law would constitute an impairment of contract. Under Section 10 of Article I of the U.S. Constitution, states cannot pass laws that contravene existing contracts, including bond indentures.

One of the seminal contract cases in legal history took place in Boston early this century, when the state's Supreme Judicial Court struck down a state limit on toll increases as an impairment of the contract with owners of bonds issued to build the East Boston Tunnell.

Whether or not the legislation pertaining to the Massachusetts Water Resources Authority is deemed to violate the Constitution's contracts clause, it is catching the attention of analysts at credit rating agencies.

Claire G. Cohen, an executive managing director at Fitch Investors Service, concurred that the oversight would affect the authority's credit quality. "Certainly, I think it would be deleterious to their credit if there were anything in place to set aside the authority's ability to set its own rates," she said. Fitch rates the authority's debt A.

Joan Dougherty, a Moody's Investors Service assistant vice president and manager, said "the independence of the MWRA, in terms of rate-setting ability, has been very important to its credit quality."

Ms. Dougherty would not say, however, whether the bill, if passed, would result in a lowering of the authority's A rating from the agency. Subjecting the authority's budget to review by the advisory board "would have to be evaluated," she said.

To some extent, the Massachusetts Water Resources Authority can relax until the bill shows signs of succeeding where similar attempts have failed, spokesman Paul DiNatale said. Since the authority's inception in 1985, bills to control the authority have come and gone without effect. "Our past experience is that these bills tend to get a lot of attention in the press, and then die very quick deaths shortly thereafter," he said.

But if the bill became law, even authority officials admit it would complicate life by reducing investor confidence and, consequently, boosting the authority's borrowing costs next month when it markets its next installment of debt.

"I'm not sure it would hurt the ratings directly," said Philip N. Shapiro, director of finance and development at the authority. "But I have to admit, if I were an investor, I would be somewhat less secure. And that's going to cost the MWRA more money. Having additional layers of budget approval spread around would make the authority a less reliable financial entity."

The uncertainty posed by the possibility of the authority's regulation by an advisory board and the department of public utilities comes in addition to another cause for uncertainty. Last week, the authority's executive director, Paul F. Levy, said he would resign Feb. 14. Mr. Levy, who took the helm in 1987, said he felt he had achieved his goals at the authority.

In addition, the authority and the state are also the subject of a lawsuit filed in August by the advisory board that seeks to block, among other things, the early repayment of a $120 million debt the authority owes the state.

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