BOSTON -- The Massachusetts Water Resources Authority got some good news yesterday in the form of a report prepared by the consulting firm KPMG Peat Marwick.

The report states that despite the complexity of the projects undertaken by the authority, the MWRA has "demonstrated effective overall management."

Massachusetts hired Peat Marwick to analyze the MWRA when Gov. William F. Weld was deciding whether to increase state aid to offset the authority's debt service costs.

"Obviously, this report showed a great many things that we hoped the investigators would find," said Douglas B. MacDonald, executive director of the authority. "One of the things that we have to do is continue to prove to bondholders, and ratepayers, and the people in Washington, D.C., that we are a well-managed authority."

Although the report paints a generally positive picture, it also points to several ways the MWRA can save hundreds of millions of dollars. MacDonald said the authority has already begun to implement many of the report's recommendations.

In the mid-1980s a federal judge ordered the MWRA to finance the cleanup of the Boston Harbor and the. construction of the Deer Island sewage treatment plant.

To fund the projects, the MWRA decided to sell revenue bonds secured by the water and sewer rate payments it received from more than 60 communities in the Boston metropolitan area.

So far, the authority has issued more than $2.5 billion of bonds for the projects.

At the outset of the issuance of bonds, the authority expected that the projects would cost about $7.7 billion. But because of favorable.interest rates and many cost revisions, the authority now expects the projects to cost just under $5 billion.

But the Peat Marwick report states that the authority could save $300 million more through eliminating certain redundant systems, changing some of the Commonwealth of Massachusetts' land use standards, and diversifying its bond issuance practices.

In the beginning of the report, Peat Marwick said it deliberately did not review any of the authority's practices that were under review by the state auditor's office or the state inspector general's office.

Therefore, there was no mention m the report. of the investigation into the authority's former financial adviser, Mark S. Ferber.

The report did say that the authority could save $8 million per year in debt service if it continues to employ diverse methods of selling bonds. More competitive sales, the issuance of variable-rate debt, and more use of short-term debt were all recommended.

"We agree with that assessment, and it was clearly shown how that can work with our last bond sale, which was our first done competitively," MacDonald said. "We are also looking into the implementation of a commercial paper program."

The report stated that the diversification of financing will also ease some of the rate shook experienced by the state's ratepayers over the last five years.

"A more flexible financing plan will enable the MWRA to smooth out and possibly reduce the aggregate rate increases required to pay debt service," the report stated. "Also, increased flexibility will allow the MWRA to better take advantage of changes in the marketplace."

Since the authority began selling bonds, the state legislature has enforced a cap on the amount the authority can have in outstanding debt.

Currently, the authority is only $27 million away from the imposed cap of $2.6 billion. The report recommends that the state legislature increase the cap to the total projected amount of the financing, $4.2 billion, to allow the authority further issuing flexibility.

Also, the report recommends the MWRA's new plan for setting rates. So far, water and sewer rates paid to the authority have been based wholly on the population of an area. The new rate methodology will be based partly on population and partly on the amount of sewage generated in a community.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.