MTA Capital Program analysis
hanc...@bbs.cpcn.com
wealth of information, including project descriptions, scope,
rationale, and costs. It is readable, that is, not in legalese.
Very interesting and informative stuff and well recommended:
http://www.mta.info/mta/pdf/2010-14questions_and_answers_v2.pdf
Lots of their basic assumptions, such as capital asset lifespan, would
be interesting to discuss. For example, a proposed Queens bus rapid
transit was nixed by Queens politicians--was this a good thing or
not? Another example--they say the economic lifespan of a bus is 12
years--true or not? (By 'economic', it isn't worth fixiing it after
12 years.) They have a chart of subway stations needing rehab.
Stephen Sprunk
> Another example--they say the economic lifespan of a bus is 12
> years--true or not? (By 'economic', it isn't worth fixiing it after
> 12 years.) They have a chart of subway stations needing rehab.
Well, not quite. It's the period over which a new bus is depreciated.
The assumption is that, after 12 years, the bus will not be a useful
asset without an overhaul, though it may have some residual/salvage
value. In each of those 12 years, they will record a depreciation
expense equal to 1/12th the difference between the full purchase cost
and the residual value, plus any normal maintenance expenses.
After those 12 years are up, the assumption is that they will sell the
bus for the residual value; a difference in the actual sale price will
be recorded as a gain or loss at that time. However, they may instead
overhaul that bus to give it another N years of useful life, which
starts the depreciation anew; it appears that MTA does not believe that
is worth the money for buses, though many railroads do it regularly.
As to whether 12 years is reasonable, that seems to be an odd number;
I'd expect either 10 or 15, but MTA has a lot of experience due to their
very large fleet, so I'd accept their estimate--for their usage
patterns, in their climate, etc.
(Those who are not familiar with accrual-based accounting may find this
confusing; it's quite different from the cash-based accounting used for
personal finances.)
S
--
Stephen Sprunk "God does not play dice." --Albert Einstein
CCIE #3723 "God is an inveterate gambler, and He throws the
K5SSS dice at every possible opportunity." --Stephen Hawking
Clark F Morris
<ste...@sprunk.org> wrote:
>hanc...@bbs.cpcn.com wrote:
>> Another example--they say the economic lifespan of a bus is 12
>> years--true or not? (By 'economic', it isn't worth fixiing it after
>> 12 years.) They have a chart of subway stations needing rehab.
>
>Well, not quite. It's the period over which a new bus is depreciated.
>The assumption is that, after 12 years, the bus will not be a useful
>asset without an overhaul, though it may have some residual/salvage
>value. In each of those 12 years, they will record a depreciation
>expense equal to 1/12th the difference between the full purchase cost
>and the residual value, plus any normal maintenance expenses.
>
>After those 12 years are up, the assumption is that they will sell the
>bus for the residual value; a difference in the actual sale price will
>be recorded as a gain or loss at that time. However, they may instead
>overhaul that bus to give it another N years of useful life, which
>starts the depreciation anew; it appears that MTA does not believe that
>is worth the money for buses, though many railroads do it regularly.
>
>As to whether 12 years is reasonable, that seems to be an odd number;
>I'd expect either 10 or 15, but MTA has a lot of experience due to their
>very large fleet, so I'd accept their estimate--for their usage
>patterns, in their climate, etc.
I believe that the FTA uses the 12 year figure. I think Public
Service Coordinated Transport got 15 - 20 years and I know some of the
buses in Halifax, Nova Scotia have gone over 20 years. In both of
those cases federal funding did not play a role (in Canada, the
federal government only sort of does transit and there is no
equivalent of the FTA). In the US and many European countries,
because of aid policies by the national government, it may not be
economically justified to use buses over 12 years old because of
maintenance costs. Emissions regulations may also influence this in
the future and the regulations already do in Europe.
hanc...@bbs.cpcn.com
> hanco...@bbs.cpcn.com wrote:
> > Another example--they say the economic lifespan of a bus is 12
> > years--true or not? (By 'economic', it isn't worth fixiing it after
> > 12 years.) They have a chart of subway stations needing rehab.
>
> Well, not quite. It's the period over which a new bus is depreciated.
> The assumption is that, after 12 years, the bus will not be a useful
> asset without an overhaul, though it may have some residual/salvage
> value. In each of those 12 years, they will record a depreciation
> expense equal to 1/12th the difference between the full purchase cost
> and the residual value, plus any normal maintenance expenses.
>
> After those 12 years are up, the assumption is that they will sell the
> bus for the residual value; a difference in the actual sale price will
> be recorded as a gain or loss at that time. However, they may instead
> overhaul that bus to give it another N years of useful life, which
> starts the depreciation anew; it appears that MTA does not believe that
> is worth the money for buses, though many railroads do it regularly.
I did not get that impression from that report. You are talking about
depreciation, which is an accounting issue. Moreover, depreciation is
of more significance to for-profit businesses since it is a tax
deduction.
They are talking about actual economic useful life of the vehicle. As
the report says, the MTA feels after 12 years the bus is no longer
economically viable. That is, at that point it will cost more to
overhaul or maintain the bus than to go out and buy a new one. It has
nothing to do with what money was set aside over the years
("depreciation") or what prior overhauls or maintenance may have
occurred prior.
>
> As to whether 12 years is reasonable, that seems to be an odd number;
> I'd expect either 10 or 15, but MTA has a lot of experience due to their
> very large fleet, so I'd accept their estimate--for their usage
> patterns, in their climate, etc.
>
> (Those who are not familiar with accrual-based accounting may find this
> confusing; it's quite different from the cash-based accounting used for
> personal finances.)
As mentioned, this is not an accounting issue.
Clark F Morris
It more likely is a FTA funding issue. If the federal government will
provide a substantial portion of the purchase price of a new bus to
replace a twelve year old bus, this probably costs the agency less
than the cost of a major overhaul. A new bus has the prospect of
lower ongoing maintenance costs (maybe optimistic). Although I have
my doubts, the bus should be taking advantage of newer technology to
reduce fuel consumption (despite trends to the contrary). It also can
better handle ADA requirements
hanc...@bbs.cpcn.com
> It more likely is a FTA funding issue. If the federal government will
> provide a substantial portion of the purchase price of a new bus to
> replace a twelve year old bus, this probably costs the agency less
> than the cost of a major overhaul. A new bus has the prospect of
> lower ongoing maintenance costs (maybe optimistic). Although I have
> my doubts, the bus should be taking advantage of newer technology to
> reduce fuel consumption (despite trends to the contrary). It also can
> better handle ADA requirements
This is all true--but--I'm not sure how much capital funding the feds
are kicking in these days.
The newer buses are supposed to be more energy efficient and less
polluting. Normally new vehicles require less maintenance than old
ones.
I'm surprised at the cost of new buses, though, IIRC, it was up to
$500k for a jumbo unit. I think the cost of a new has gone up much
more than the rate of inflation since the GMC 'fishbowls' of the
1960s. Likewise for subway and railroad psgr cars.
Stephen Sprunk
> On Nov 6, 5:35 pm, Stephen Sprunk <step...@sprunk.org> wrote:
>> hanco...@bbs.cpcn.com wrote:
>>> Another example--they say the economic lifespan of a bus is 12
>>> years--true or not? (By 'economic', it isn't worth fixiing it after
>>> 12 years.) They have a chart of subway stations needing rehab.
>>
>> Well, not quite. It's the period over which a new bus is depreciated.
>> The assumption is that, after 12 years, the bus will not be a useful
>> asset without an overhaul, though it may have some residual/salvage
>> value. In each of those 12 years, they will record a depreciation
>> expense equal to 1/12th the difference between the full purchase cost
>> and the residual value, plus any normal maintenance expenses.
>>
>> After those 12 years are up, the assumption is that they will sell the
>> bus for the residual value; a difference in the actual sale price will
>> be recorded as a gain or loss at that time. However, they may instead
>> overhaul that bus to give it another N years of useful life, which
>> starts the depreciation anew; it appears that MTA does not believe that
>> is worth the money for buses, though many railroads do it regularly.
>
> I did not get that impression from that report. You are talking about
> depreciation, which is an accounting issue. Moreover, depreciation is
> of more significance to for-profit businesses since it is a tax
> deduction.
MTA follows GAAP, which _require_ that long-lived assets be depreciated.
Since they are constitutionally tax-exempt, it obviously has nothing to
do with tax deductions.
In fact, you can see the depreciation information in Note 6 on page 56
(PDF page 114) of their 2008 annual report, though it's not as detailed
as some I've seen ("2-40 years for equipment" is a heck of a range).
> They are talking about actual economic useful life of the vehicle. As
> the report says, the MTA feels after 12 years the bus is no longer
> economically viable. That is, at that point it will cost more to
> overhaul or maintain the bus than to go out and buy a new one.
Which is an oversimplification of what I said above.
> It has nothing to do with what money was set aside over the years
> ("depreciation") or what prior overhauls or maintenance may have
> occurred prior.
Depreciation is not "setting money aside"; it is spreading the expense
of purchasing (or overhauling) an asset over the entire period that it
is used, rather than charging the entire expense to the quarter/year of
purchase and then using it "for free" for several more years/decades.
Revenues and expenses are very, very different from cash inflows and
outflows when you're doing accrual-based accounting (aka GAAP).
>> As to whether 12 years is reasonable, that seems to be an odd number;
>> I'd expect either 10 or 15, but MTA has a lot of experience due to their
>> very large fleet, so I'd accept their estimate--for their usage
>> patterns, in their climate, etc.
>>
>> (Those who are not familiar with accrual-based accounting may find this
>> confusing; it's quite different from the cash-based accounting used for
>> personal finances.)
>
> As mentioned, this is not an accounting issue.
Yes, it is.
It may _also_ be, as Clark points out, an issue with FTA funding; the
FTA prefers to fund purchasing "new" capital assets over improving or
overhauling "old" capital assets, which may be why it is "cheaper" to
get new buses after 12 years. The FTA gives MTA about $700M/yr in
capital grants (not including the SAS or ESA), so that is definitely a
factor in the decisions they make. It may actually cost more money to
replace the buses than overhaul them, but if someone else picks up part
of the tab for one but not the other, that will change things.
Clark F Morris
If a bus route has a frequency of 12 buses or more an hour in the peak
and at least 6 buses an hour in the off-peak, it should be a candidate
for conversion to streetcars. If the federal government wasn't
picking up part of the tab for new buses, the life might be 15 - 20
years. The other advantage of a 12 year life span is faster
integration of less polluting buses.