Analysis of Operating Expenses in New York City's Fiscal Year 1978 Capital Budget

The operating expenses contained in New York City's fiscal year 1978 capital budget are understated but only by a relatively small amount. This amount was determined using a strict interpretation of the criteria, which are more strict than many municipalities might 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.

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 million 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 determinations on the remaining $13.4 million. Representatives of both the State and City Comptrollers' Offices agreed with the determinations in all cases.