A Prescription for Getting the MTA on the Right Fiscal Track
The Stamford Review, Fall, pp. 27-24.
Brecher, C. & Mustovic, S.
Typically when an asset is acquired it is assigned a "useful life" representing the amount of time it can be expected to stay in use. Then a fraction of the asset's purchase price, equal to one year of its "useful life," is counted as an annual expenditure called depreciation. The MTA's depreciation schedules are based upon estimated useful lives of 25 to 50 years for buildings, two to 40 years for equipment, and 25 to 100 years for infrastructure. Most subway cars are depreciated over 30 years and buses over 12 years. Setting aside money equal to the value of depreciation, known as "funding depreciation," is a way of ensuring that an organization has adequate capital to replace assets at the end of their useful life. In contrast, failing to fund depreciation enables an organization to meet its cash expenses each year without having a budget that is balanced under generally accepted accounting principles. However, the adverse consequence of this practice is a shortage of capital and a resulting need to borrow in order to replace depreciated assets. This is the path the MTA routinely takes.