K?2w - qs4 D)OCUlENlT RESULME op 77 04052 - [ 3194435 Analysis of Operating Expenses in New ork City's Fiscal Year 1978 Capital Budget. GGD-78-13; B-185522. ovember 15, 1977. Released December 15, 1977. 9 pp. 2 appendices (14 pp.). Report o Rep. illian S.o oorhead, Chairman, House Committee on Banking, Finance and Urban Affairs: Economic Stabilization Subcommittee; by Blmer B. StadtS, Coptroller General. Issue Area: antergovernmental Policies and iscal Relations: iscal Problems and Potertial Solutions (407). Contact: General Government iv. Budqet Function: Revenue Sharing and General Purpose Piscal Assistance: Other General Purpose Fiscal Assistance 352). Organization Concerned: New York, NY; Dpartmert of the Treasury. Congressional Relnvance: House Committee on Banking, Finance and Urban Affairs: Economic Stabilization Subcommittee. The operating expenses contained in New ork City's fiscal year 1978 capital budget are understated, but only by a relatively small amount. This anount was determined using a strict interpretation of the criteria, which are mcre strict than many municipalities amght currently be following. However,, in view of the current fiscal problems of the city and its need to restore investor confidence, it is in the city's best interest to apply strict criteria in determining whether budget items are valid capital outlays or operating expenses. F-ndings/Conclusions: New York State law requires New York City to eliminate operating expenses from its capital budget over a 10-year period. Using criteria established by the State Comptroller, the city classified $643 illice, of its $1.031 billion in planned capital outlays as operating in nature. Application of a strict interpretation of the State's criteria identified an additional $18.9 million which should have been classified as operating expenses. For an additional $8.3 million in planned expenditures, city officials did not have sufficient documentation to permit determination as to whether the items were valid capital charges. City officials agreed that $5.5 million in expenditures should be classified as operating, but disagreed with the deterainations on the remaining $13.4 milion. Representatives of both the State and City Comptrollers' offices agreed with the determinations in all cases. (Author/SC) i. -- fcTED ot - be r L:--; e? prer- 4 e prl Acceunt ng Office except on t e &.iU 6pefl appevAl by re Office of CongressiooM4 A*iti B.D 0 REPORT OF THE . aiCOMPTROLLER GENERAL .ou, OF THE UNITED STATES Analysis Of Operating Expenses In New York City's Fiscal Year 1978 Capital Budget State law requires New York City to elimi- nate operating expenses from its c;apital bud- get over a 10-year period. Using criteria es- tablished by the State Comptroller, the City classified $643 million of its $1.031 billion in planned capital outlayb as operating in nature. GAO applied a strict interpretation of the State's criteria and identified an additional $18.9 million. In view of the City's current fiscal problems and its need to restore investor confidence, GAO believes it is in the City's best interest to apply strict criteria and recognize this amount as operat- ing in nature. GGD-7813 NOVEMBER 15, 1977 COMPTROLLER GENERAL OF THE UNITED STATES WAEHINTON, D.C. 2043 B-185522 The onorable William S. Moorhead Chairman, Subcommittee on Economic Stabilization Committee on Banking, Finance and Urban Affairs House of Representatives Dear Mr. Chairman: In your letter of May 11, 1977, you requested that we supplement with additional information the briefing we gave your Subcommittee on April 29, 1977, on New York City's financial situation. Specifically, you requested that we furnish data on (i) operating expenses in the capital budget, (2) the City operating budget increases above the amounts anticipated in the 3-year financial plan, and (3) illegal aliens in New York City as they affect the City's population base. We have already responded on the matters of illegal aliena and operating budget increases. This report addresses the issue of operating expenses in the capital budget. You stated that the Subcommittee would like to know how much of the Mayor's proposed fiscal year 1978 budget represents operating expenses, why the proposed executive budget indicated an increase in the amount of operating expenses in the capital budget over the amount previously reported, and whether the City is adheriag to the State-legislated mandate to eliminate operating expenses from the capital budget. Your questions address some basic issues of municipal financial practice for which no hard and fast rules exist and on which opinions differ significantly. A conservative approach to public finance dictates that all current expenses, as well as a normal level of recur- ring capital outlays, should be included in a municipality's operating budget and funded with current revenues. The B-185522 capital budget, which is fnded with borrowings, should likewise, uder a onservative approach, be restricted to paying for the construction of major permanent facilities having relatively long life. Applying th.s approach in practice, however, is some- times difficult. What constitutes a normal level of recur- ring capital outlays, which should be in the operating budget, is judgmental. When a local official is f'ced with making this determination, he may well lean toward funding all capital outlays through borrowing, thus freeing crrent revenues for other purposes. In the extreme situation, he may even classify certain operating expenses as capital and borrow to pay for tem. This was the case in New York City in the years preceding the fiscal crisis of 1975. For over a decade, the City, with the approval of the State, had borrowed money through its capital budget to pay for certain opera- ting expenses wnich should have been paid for with current revenues. This is one of the much publicized "gimmicks" the City used to balance it3 operating budget. After public disclosure of this "gimmick," the New York State legislature concluded that the funding of operating expenses through the ca.ital budget wias an un- desirable practice and directed that it be eliminated in accordance with criteria to be laid down by the State Comptroller. The Comptroller issued Accounting Systems Directive Number 4, "Budgeting, Accounting and Financing of Capital Outlays and Expense Programs Eligible for Borrowing Under Law," in early 1976 and subsequently revised and liberalized it sonmewhat in February 19;7. (See app. I.) It provides that in addition to "brick. and mortar" projects, the City may capitalize equipment having a unit cost of $15,000 or more and minimum useful life of 5 years. We applied the criteria established by the Directive in responding to your questions. HOW MUCH OF TBH MAYOR'S PROPOSED FISCAL YEAR 178 CAPIT7L BUDGET REPRESENTS OPERATING EXPENSES? The fiscal year 1978 capital -at proposed total appropriations of $1.36 billion, of h $865 million represented City funds and the bala; presented Federal, State, and private grants. Since ti.. propriations represent, in part, what some City ci:ic.als cal a "wish list," that is, projects in the early stages of planning 2 B-185522 which might later be canceled, it is not the best represen- tation of what the City will spend. A better representation of planned capital improvements is the "cash flow report," which is a forecast of those projects on which funds will actually be spent during the year. For the purposes of our tests, we focused on the cash flow forecast. The forecast shows a total planned outlay of $1.445 billion, which is somewhat higher than the budget because it includes some planned outlays on projects authorized in prior years for which expenditures will be made in fiscal year 1978. Of the $1.445 billion, $1.031 billion represents the amount to be financed by the City and includes $608 million in operating expenses which, according to the Direc- tive criteria, should hiave been included in the operating budget. Subsequent to the budget's publication, the City reclassified another $35 million as operating expenses based upon analyses conducted by the State and City Comptrollers. Thus, a total of $643 million or bout 62 percent of the total outlays of $1.031 billion was identified as operating expenses, leaving 38 percent or $388 million which repre- sented capital outlays. This can be summarized as follows. (millions) Operating expenses in executive capital budget $ 608 Addition agreed to by City 35 Total operating expenses recognized by City 643 Total capital projects--per City 388 Total planned expenditures for 1978 capital budget--City funds $1,031 We reviewed 116 of the 434 projects which were considered valid capital by the City. These projects accounted for over 60 percent of the $388 million of valid capital projects. In conducting these tests, we applied a strict interpretation of the principles of the Directive because past interpretations of capitalization criteria contributed to the City's fiscal difficulties. 3 B-1855.2 Applying this strict interpretation and a conservative approach to public financing decisions, we identified million which we believe should be recognized $18.9 as operating expenses. For an additional $8.3 million in planned expendi- tures, City officials did not have sufficient documentation to permit us o determine whether those items were capital charges. The amount of operating expenses valid capital budget, therefore, is at least $662 million in the than the $643 million recognized by the City. rather City officials agreed that $5.5 million in expenditures should b classified as operating, but they disagreed with our determinations on the remaining $13.4 million. sentatives of both the State and City Comptrollers' Repre- offices agreed with our determinations in all cases. Most of the City's disagreement centered around following issues: the -- The City feels that resurfacing of streets is a valid capital project, since it extends their useful life. We feel, however, that resurfacing merely restores streets to their original con- dition, and, in any event, should be expensed since it is a normal recurring maintenance expense of the City. Of the $13.4 million dis- puted by the City, $7.2 million is attributable to this disagreement. -- The City maintains that it can legally borrow for installment payments on equipment purchases. Whether it is legal or not, we feel the install- ment payments themselves represent borrowing by spreading the equipment cost over a number of years. While the equipment is clearly a capital asset, a onservative approach to public finance would dictate that the installment payments be funded thrcugh current revenues rather than by capital fund borrowings which result in principal and interest payments that must eventually be funded out of current revenues. Approximately $3.3 million is attributable to this disagreement. -- The City contends that the Directive did not become effective until July 1, 1977, and there- fore does not apply to any commitments prior to that date even if money will be spent in fisc4' year 1978. In our opinion, the Directive must be applied etroactively since State 4 B-185522 legislation requires that it be used as criteria in examining the capital budget for fiscal year 1976, the base year in the 10-year phase-out of operating expenses. Representatives of the State Comptroller's office also maintain that the Directive is retroac- tive to fiscal year 1976. Almost $2.5 million is attributable to this disagreement. A listing of all the projects in question is attached as appendix II. That listing briefly describes our reasons classifying the projects as we did, as well as the reasonsfor why City officials disagreed with our conclusions. In addition to testing the 116 projects, we also looked at another aspect of the City's fiscal year 1978 capital budget. In prior years, the City had charged salaries of certain Ci'ty employees to the capital budget without document- ing the validity of these charges. For fiscal year 1978 the City has developed a new system which, for the first time, systematically records and accumulates these time charges. The Directive recognizes the validity of charging these in-house labor costs to the capital budget. It requires, however, that they be allowed only up to the amount which would be incurred if the same work were contracted out to independent architects and engineers. We examined this system and concluded that it should be adequate to insure that charges for in-house labor will not be excessive. Detailed time records will be required for each employee whose time is charged to the capital budget. Furthermore, the City, in determining the maximum amount of in-house labor it can charge, will use the same fee schedule it applies when computing fees payable to independent architects and engineers. Therefore, assuming the projects on which City employees work are valid capital projects, the system should operate to insure that excess charges to the capital budget do not occur. WHY DOES THE PROPOSED EXECUTIVE BUDGET INDICATE AN INCREASE IN THE AMOUNTOF OPERATING EXPENSES OVER THE AMOUNT PREVIOUSLY REPORTED? The 3-year financial plan estimated that the spend $515 million on operating expenses supported City would by capital Dorrowings in the third year--fiscal year 1978. However, the time that plan was prepared, the criteria for making at a capital/expense determination were uncertain. The New York State Comptroller had prepared the Directive, but City of- ficials objected to those criteria. 5 B-185522 One section was particularly controversial. original version dated February 1976, In its the Directive provided t'out. in addition to "bricks and mortar" projects, certain maj3r equipment purchases could be considered as capital projects if the unit cost was the useful economic life was at least $75,000 or more and 7 years. That provi- sion meant, for example, items such as garbage trucks would have to be recognized as operating expenses cost less than $75,000. because they City officials, including the Mayor and Mayor for Finance, pressed for a change his Deputy proposing more liberal criteria that in the Directive, would allow it to borrow for equipment costing $3,000 or more and which had a useful economic life of at least 3 years, In order to end the controversy and uncertainty, Directive by lowering the limits for the State revised the equipment to a minimum unit cost of $15,000 and a minimum useful life By this revision, certain equipment purchases of 5 years. have been financed through current which would revenues original Directive could now be financed under the through borrowings. The City deferred any new analysis of budget until agreement was reached its capital on the Directive. With a compromise finally achieved, the City the budget as required by State law. began to analyze analysis were disclosed in the Mayor's The results o this 1978 Executive Budget which showed that $603 million of operating expenses would be funded by capital fund that year, in lieu of the $515 million borrowings in previously projected in the financial plan. Both of the estimates, $515 million and were based on the same basic universe $608 million, of items. The change represents a reclassification of items, capital and vice versa in accordance from operating to with the revised criteria, rather than the addition of new items. The major items accounting for the net $515 million to $608 million follow. increase from City subsidy to Transit Authority reclassified as an operating expense-- 71 million The New York City Transit Authority, an independent agency operating the subways and some City, receives funds from the City bus routes in the through various subsidy mechanisms. Beginning in 1975, the City used its capital 6 B-185522 budget to provide an annual subsidy to the Transit Authority. The subsidy is used for maintaining the City's subways and is thus a City operating expense. Therefore, the $71 million projected to be spent in fiscal year 1978 was reclassified as an operating expense. Judgments and claims reclassified as an operating expense--77 million The City has traditionally borrowed to pay for unfore- seen judgments or claims. Many of the prior claims suffered by the City have not been of a capital nature. Instead, they consisted of such operating expenses as salary and wage adjustments, compensation for personal injuries to citizens, and tuition costs for handicapped children, all of which do not meet the new Directive criteria for capital projects. As a result, the $77 million estimate for judgments and claims in fiscal year 1978 was reclassified as an operating expense. Various purchases reclassified as an operating expense--Sio million The new Directive criteria prohibit the City from bor- rowing for machinery and equipment purchases if the unit cost is below $15,000 or the estimated useful life is less than 5 years. This is a stricter definition than the criteria the City used in preparing its original estimate. Therefore, the City had to reclassify $10 million in purchases of items such as light trucks which did not meet the new criteria. In-house labor reclassified as cpital--$72 million - The new Directive considers City personnel and related costs "directly applicable to specific capital projects" as valid capital ccsts. This includes engineering and architec- tural costs for design and supervision of construction. With this provision in mind, the City determined that the $515 million in operating-expenses projected in the financial plan included $72 million of such valid capital charges. The City therefore reduced the operating expenses in the capital budget by this amount. * * * * * In summary, then, the City adjusted its financial plan projection of operating expenses funded by 1978 capital spending as follows. 7 B-185522 (millions) Fiscal year 1978 operating expenses supported by long-term borrowings per financial plan $515 Plus: Transit Authority subsidy $71 Judgments and claims 77 Various equipment purchases 10 Other increaser 7 165 Less: Personnel and other costs directly related to capital projects 72 Fiscal year 1978 operating expenses supported by long-term borrowings per fiscal year 1978 Executive Budget $608 IS THE CITY ADHERING TO THE STATE-LEGISLATED MANDATE TO ELIMINATE OPERATING EXPENSES FROM THE CAPITAL BUDGET? Under the mandated phase-out the City was required to gradually reduce borrowings for operating expenses over a 10-year period. In each fiscal year beginning with 1977, the City would have to reduce by 10 percent the amount of operating expenses funded in the fiscal year 1976 budget. When the compromise on the Directive was reached, the City reevaluated its fiscal year 1976 capital budget using the new criteria. It determined that $861 million of operating expenses was included in the original budget for 1976. A 10-percent reduction for each of the subsequent 2 years would leave the City with $688 million as the fiscal year 1973 ceiling for operating expenses funded by capital fund borrowings. The $608-million estimate in the City's fiscal year 1978 executive budget is within this ceiling. Even with the $35 million adjustment added and the $18.9 million we identified, the resulting $662 million is below the limit. 8 B-185522 * * * * * In summary, our analysis indicates that tha operating expenses contained in the City's fiscal year 1978 capital budget are understated, but only by a relatively sall amount. Furthermore, this amount was determined sing a strict interpretation of the criteria, more strict than many municipalities might currently be following. Neverthe- less, in view of te current fiscal problems of the City and its need to re'store investor confidence, it is in the City's best interest to apply strict criteria in determining whether budget items are valid capital outlays or operating expenses. We trust this analysis of the operating expenses funded through the capital budget is responsive to your Subcom- mittee's needs. If you have any questions or wish to discuss the information provided, we would be happy to meet with you at your convenience. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distri- bution of this report until 30 days from the date f this report. At that time we will send copies to interested parties and make copies available to others upon request. Syyou /a Comptroller General of the United States 9 APPENDIX I COPY APPENDIX I STATE OF NEW YORK DEPARTMENT OF AUDIT AND CONTROL DIVISION OF AUDITS AND ACCOUNTS ACCOUNTING SYSTEMS DIRECTIVES FOR NEW YORK CITY Accounting Systems Directive No. 4 Budgeting, Accounting and Financing of Capital Outlays and Expense Prograls Eligible for Borrowing Under Law Introduction The capital budget may be financed through borrowings, current revenues, or a combination of the two. From the viewpoint of conservative public finance, ideally all govern- mental programs of an expense nature and a general or normal annual level of capital expenditures should be financed from current revenues. It is rcognized, however, that public finance requires a balanced financing approach and that de- pending upon circumstances, borrowings may be used to finance all projects that can be clearly defined as capital in nature. This directive is designed to provide a more conserva- tive approach to financing capital construction than has been previously followed by New York City. It defines those particular elements of capital construction that may be fi- nanced through borrowing, as distinguished from those which should be financed through current revenues. It is also designed to establish practices and procedures to account for all capital outlays of the City that will conform to generally accepted accounting principles and widely followed budgetary practices, at the same time being compatible with 10 APPENDIX I - COPY APPENDIX I the phase-out financing program authorized in the MAC legis- lation. This directive is intended, however, to cover only capital outlays to be budgeted and accounted for in the City's capital projects fund ana general fund. Capital Outlays Defined Capital outlays are defined as those expenditures which result in the acquisition of, replacement, or additions to fixed assets. Broadly speaking, these will consist of: 1. Capital expenditures which meet the definition of a capital project," as hereinafter defined; and 2. Capital expenditures other than those meeting the definition of a "capital project," consisting of machinery and equipment, including autos and trucks, furniture, office equipment and related items. Capital Projects Defined Capital projects are defined as "those capital outlays other than special assessment and enteri rise fund projects, which involve the construction of major, permanent facili- ties having a relatively long life. These projects do not include fixed assets with a comparatively limited life, such as various types of machinery and office equipment. The latter are not generally appropriate objects for long-term borrowing by state and local governments and consequently are financed by current revenues..." 1/ l/Governmental accounting, auditing, and financial reporting, Page 43. 11 APPENDIX I COPY APPENDIX I The City Charter states that "the term 'capital project' shall mean any physical public betterment or improvement or any preliminary studies and surveys relative thereto, which would be classified as capital expenditures under generally accepted accounting principles for municipalities." In accordance with the above definition, capital project expenditures shall include the acquisition or construction cost of land, buildings and major improvements other than buildings. Capital project construction costs shall include all direct costs for materials and labor, engineering and "first line" architectural costs for design and supervision of con- struction. (Such costs shall be included whether the archi- tectural work is performed by consultants or by "in-house" personnel. If "in-house" personnel are used, the related costs should not exceed that which would be charged by con- sultants.) This would permit the City to treat as project costs, the personnel and related costs directly applicable to specific capital projects such as the costs of site survey and site selection. To insure a reasonable limitation and control over such capital project expenditures, such charges or allocations must originate from a controlled time distri- bution system, accounting for all time of the unit performing 12 APPENDIX I COPY APPENDIX I these services and be reasonable in the light of that which would be charged by consultants. Costs of fixed equipment and machinery, furniture and office equipment may be included as part of a capital project where such costs represent an initial outfitting of a speci- fic capital project. In addition, capital outlays for cer- tain major equipment, whether an initial or replacement ac- quisition 7 shall be considered to meet the definition of a capital project where the unit cost thereof is $15,000 or more and its useful economic life is at least five years, provided that it is other than a passenger type automobile or light truck. This latter definition is applicable only- to the extent that the resulting financial statements of the capital project fund will be fairly stated in conformity with generally accepted accounting principles. Budgeting and Accounting for Capital Outlays Basic Principles Generally accepted accounting principles should be fol- lowed for the purpose of determining the appropriate fund in which to account for the two types of capital outlay, as previously defined. The budgeting practice should be based on and follow the accounting principles applicable thereto. Capital Projects Fund A capital budget is a plan of proposed capital projects and the mears of financing them. Upon adoption it shall cover 13 APPENDIX I COPY APPENDIX I such period of time as is required to complete all capital projects included therein. Those capital outlays which meet the definition of a "capital project" should be budgeted and accounted for in a capital projects fund. As previously stated, such capital expenditures would include t- acquisition or construction cost of land, buildings, and major improvements other than buildings. Machinery and relatJ equipment would be included only when such costs represented an initial outfitting of a capital project, or consisted of major equipment with a uni' cost of $15,000 or more and a useful economic life of at least five years, as heretofore defined. Generally, all projects included in the City's capital budget for successive fiscal years can be accounted for in a single capitil projects fund. Within said .und an indi- viduai capital project account should be established for each authorized project except for a series of related proj- ects, which can be consolidated as a single project. Major projects for which a detailed classification of expenditures is deemed desirable may be accounted for by the use of sub- expenditure accounts, as provided for in the prescribed chart of accounts for the Capital Projects fund. Charges to an individual Capital Project account are limited to those costs that result in the addition to fixed assets through construction and/or acquisition, as heretofore defined. 14 APPENDIX I COPY APPENDIX I General Fund Those capital outlays which do not meet the definition of a "capital project" should be budgeted and accounted for in the general fund. Generally, these will include all equipment (not part of the initial outfitting of a specific capital project) required to be used by City departments and agencies whose operations are to be accounted for in the general fund, such as normal annual replacement purchases of machinery, automotive equipment, furniture, office equipment, and similar items. Recurring City expenditures not directly related to the acquisition or construction of specific capital projects should be excl,'ded from the capital budget. Exclusions would cover such items as recurring costs for ongoing surveys and studies of prospective project sites, general planning and administrative costs of departments or agencies involved in capital project activities, processing and audit of vouchers, budget and accounting personnel assigned to overall planning for capital projects, general administrative overhead related to such work, costs of supervising the work of consultant architects, and such extraneous items as judgments and claims. These items and any phase-out financing authorized by the MAC legislation should be budgeted and accounted for in the general fund. 15 APPENDIX I COPY APPENDIX I Financing of Capital Outlays and Expense Type Programs Under MAC Legislation Whether capital outlays (and eligible expense programs under the Local Finance Law) are financed by borrowing or from current revenues are matters of City financing policy and legal directives, not accounting principles or budgetary practices. Regardless of the method of financing they should nonetheless be budgeted and accounted for in the appropriate fund, based on generally accepted accounting principles, as set forth heretofore. For many years the City as financed by borrowing all of its true capital projects, other capital outlay items; and many expense type programs permitted under the Local Finance Law to be so financed. The MAC law now mandates that the .City will, on a phased basis, eliminate fron its capital budget those expenses that are properly includiblt only in its expense budget. Under such legislation, expense type programs financed by borrowing du-ing the authorized phase- out period will nonetheless be accounted for in the general fund. Proceeds from sale of bonds or other long-term debt would be recorded in a revenue account entitled "Proceeds from sale of bonds (or other appropriate form of long-term debt)" in the general fund until such time as the phase-out financing program is completed. 16 APPENDIX I COPY APPENDIX I The fact that equipment of machinery is estimated to last more than a specified number of years or cost more tan a specified amount are criteria for such items being included in the general fixed assets group of accounts but normally not for purposes of capital projects budgeting and account- ing. 17 APPENDIX II APPENDIX II CITY AND OUR COMMENTS ON OPERATING EXPENSES IN SAMPLED PROJECTS IN FISCAL YEAR iP18 CAPITAL BUDGET Amount that should be recognized-as an operating expense Project HW 349: Repaving anil resur- facing of streets and highways. -- Our comments: Resurfacing should $7,200,000 be expensed since it only re- stores streets to their original condition after normal wear and tear, and street resurfacing is a normal recurring maintenance expense. -- City comments: Resurfacing streets extends their useful life by more than 5 years and therefore the cost should be included in the capital budget. Projects WM 1 & WM 6: Water main exten- sions and ordinary improvements to dis- tribution system and improvements and additions to pumping plants and buildings. -- Our comments: Projects include 1,691,000 costs for replacements of water mains, hydrants, etc., broken by accident. These are ordinary recurring repairs which should be expensed. -- City comments: These items should be expensed in the future. How- ever, $778,000 of the charges should be allowed in the fiscal year 1978 Capital Budget since this amount was committed prior to what the City considers the effective date of the State's directive, Accounting Systems Directive Number 4 (ASD-4). 18 APPENDIX II APPENDIX II Amount that should be recognized as an operating expense Projects HN 191, PU 16 & TF 1: Purchase of EDP equipment for various city departments. -- Our comments: When equipment is $3,316,000 purchased on the installment plan which spreads cost over 5 years, the installment payments should be expensed rather than bonded and spread over additional years. -- City comments: Purchase of equip- ment on the installment basis is legally bondable. Project F 109: Fire fighting vehicles and equipment. -- Our comments: Project includes small 21,000 trucks costing under $15,000 which should be expensed. -- City comments: These items should be expensed in the future. How- ever, the charges should be allowed in fiscal year 1978 since City officials dispute the effective date of ASD-4. Project BR 8: Reconstruction and improvement of bridges. -- Our comments: Project includes paint- 430,000 ing and repairs which should be expensed as normal maintenance. -- City comments: These items should be expensed in the future. Ho ver, $295,000 of the charges should be allowed in the fiscal year 1978 capital budget since this amount was committed prior to what the City considers the effective date of ASD-4. 19 APPENDIX II APPENDIX II Amount that should be recognized as an operating expense Projects HO 215 & PU 15: Purchases of ambulances and trucks. -- Our comments: Projects include $962,000 vehicles costing less than $15,000. These do not meet ASD-4 criteria and should be expensed. -- City comments: These items should be expensed in the future. How- ever, they should be allowed in fiscal year 1978 since City officials dispute the effective date of ASD-4. Project E 643 R,K & M: Modernization of schools. -- Our comments: Project includes 235,000 books and supplies which should be expensed. -- City comments: These items should be expensed in the future. How- ever, the charges should be allowed in fiscal year 1978 since City officials dispute the effec- tive date of ASD-4. Project HO 214: Reconstruction and modern- ization of various hospitals. -- Our comments: Project includes 311,000 minor improvements which should be expensed. -- City comments: These small construc- tion projects can be legitimately capitalized because they are improvements. 20 APPENDIX II APPENDIX II Amount that should be recognized as an operating expense Project E 1750: Installation of intrusion alarm systems in various schools. -- Our comments: Individual school $ 120,000 alarms do rot meet the ASD-4 criteria because thev do not constitute a total integrated system. -- City comments: These alarms constitute valid capital improvements since, when considered as one system, they meet the ASD-4 criteria. Projects F 212 & PU 16: Purchase of EDP equipment for various City departments. -- Oir comments; Projects include 490,000 maintenance contracts on equip- ment. Maintenance is a normal recurring expense. ---City comments: The City agrees these items should be expensed. Project PU 16: Purchase of EDP equipment for various City departments. -- Our comments: Project includes the 95,000 cost of renting computers and purchase of miscellaneous minor equipment. Both hould be expensed. -- City comments: These items should be expensed in the future. How- ever, the charges should be allowed in 'iscal year 1978 since City officials dispute the effec- tive date of ASD-4. 21 APPENDIX II APPENDIX II Amount that should be recognized as an operating expense Project T 150: Purchase of rapid trar-it cars. comments: Project includes $3,970,000 ,..ncipal repayment on Transit Authority bonds. This cost iould be expensed. -- City comments: The City agrees this item should be expensed. Project L 101 M: Reconstruction and rehabilitation of various libraries. -- Our coiaments: Project ncludes pay- ments for maintenance and repairs 32,000 which should be expensed. -- Cty comments: These items should be expensed in the future. How- ever, the charges should be allowed in fiscal year 1978 since City officials dispute the effective date of ASD-4. Project PW 284: Renovation of public buildings. -- Our comments: Project includes pay- ments for maintenance and repairs 34,000 which should be expensed. -- City comments: These items should be expensed in the future. Bow- ever, the charges should be allowed in fiscal year 1978 since City officials dispute the effective date of ASD-4. Project C 75: Improvements and moderniza- tions, Department of Corrections. -- Our comments: Project includes minor 14,000 improvements which should be expensed. -- City comments: Cost of improvements represents a legitimate capital item. 22 APPENDIX II APPENDIX II Amounti that should be recognized as an operating expense Project T 2: Engineering expenses in connection with projects of other departments. -- Our comments: Project includes $ 16,000 cost of testing heating oil to City specifications which should be expensed. -- City comments: These items should be expensed in the future. However, the charges should be allowed in fiscal year 1973 since City officials dispute the effective date of ASD-4. Total operating expenses $18,937,000 (01739) 23
Analysis of Operating Expenses in New York City's Fiscal Year 1978 Capital Budget
Published by the Government Accountability Office on 1977-11-15.
Below is a raw (and likely hideous) rendition of the original report. (PDF)