(11) Commitments and Contingencies

The City has a service agreement (the "Service Agreement") with Refuse Energy Systems Company ("RESCO"), under which RESCO is required to accept the City's municipal solid waste for disposal at its Saugus Solid Waste Incineration Facility (the "Facility"). Under the Service Agreement, the City is required to pay its proportionate share of the cost of any alteration or addition to the Facility required by a change in law that imposes higher standards for the incineration of waste. Under the Service Agreement, RESCO is required to use its best efforts to minimize the cost of any such alteration or addition and to challenge the applicability of any such change in law to the Facility.

During 1987, the Massachusetts legislature enacted legislation ("Chapter 584") requiring solid waste incineration facilities to be retrofitted with "acid gas scrubbers" or equipment capable of achieving the same result. In January 1991, RESCO notified the City (and all other municipalities with similar service agreements) of its intent to pass through all costs which it claimed were necessitated by the passage of Chapter 584.

Under the Service Agreement, the City is responsible for paying its proportionate share of such costs for the remaining term of the contract after satisfactory completion of the alteration or addition. RESCO achieved satisfactory completion in April 1991. The Service Agreement expires on June 1, 1995.

The City issued $2,410,000 in general obligation bonds to finance its proportionate share of alterations to the facility.

After consideration of future amounts City management believes will be payable under the service agreements with RESCO for the acid gas scrubbers retrofit, and bond proceeds available to the City to finance such payments, City management does not believe that this contractual issue will have a material adverse impact on the City's financial condition taken as a whole.

Other lawsuits are pending or threatened against the City, which arose from the ordinary course of operations, including actions commenced and claims asserted against it for property damage and personal injury, breaches of contract, condemnation proceedings and other alleged violations of law. Provisions have been made for losses which are probable and estimable in the general long term obligations account group. Other potential losses, if any, are not expected to be material to the financial condition of the City.