Issues Surrounding Uses of PEG Funds Capital costs

Issues Surrounding Uses of PEG Funds ■ Capital costs are not defined in federal law! ■ ■ ■ FCC has provided some guidance but ambiguities remain Legal and accounting aspects need to be considered Accounting literature does not have strict definitions for capital costs or normal operating costs ■ How PEG funds can be used are frequently defined by: ■ ■ ■ Local franchise State law ■ The “collision” with franchise fee definition ■ Establish financial policies that provide guidance

Account Classifications for Various Capital Expenditures n A simple rule: Capital costs are those incurred in order to bring a project to an operational status, including: n n Planning and design Construction (labor and materials) Start-up costs Governmental permitting n Capital costs could include a justifiable amount of overhead for expenses that may normally be operational in nature, but are expended to manage the construction activities. n Capital costs also include non-recurring expenses that are part of a larger capital project or even a smaller capital purchase (e. g. , shipping expenses for new equipment to be capitalized can also be capitalized with the new equipment).

Account Classifications for Various Capital Expenditures n Capital costs are also those expenditures that have been determined to be capital, based on the capitalization policy of the entity. n The policy should include a minimum amount for the expenditure to be considered capital, as well as a minimum useful life. n For purposes of budgeting for normal operations, that would be beyond the 12 months in your current fiscal period. n Exceptions to the policies should be clearly noted. n For purposes of capital budgeting, capital costs are those associated with having property, plant, and equipment (including property taxes, insurance, and long-term lease rentals). The objective is typically to increase utilization of facilities as well as maintaining the plant.

Account Classifications for Various Capital Expenditures n Capital support can extend beyond the purchase of property and equipment to expenditures associated with maintaining and safeguarding the property as well as any direct expenditure undertaken to increase the utilization of the property and equipment. Examples include: n n n Real and personal property taxes Property insurance Repairs and maintenance Employee time to maintain or safeguard property Software associated with tracking equipment Storage costs n If an entity were to design and construct facilities or equipment internally, then any direct time and expenses as well as overhead should be considered capital support.

Example of Definition of Capital Expenses ■ Crea. TV San Jose’s Financial Policies include the following definition of capital expenses: Capital expenses are costs relating to the offices, production facility and equipment needed to conduct the program and services of SJCMAC. Capital expenses shall include items such as facility rental and upkeep: equipment purchases and leases: property taxes and insurance; storage costs; parts, supplies and software necessary for equipment operations or maintenance; and any professional services related to the acquisition, installation, repair, maintenance and safeguarding of SJCMAC facilities and equipment.

Further Information Available n For precise information regarding expenses and how they are allocated, examine the Statement of Functional Expenses in Crea. TV’s independent auditor’s report found at this link: www. creatvsj. org/wp-content/uploads/2013/03/2011 Audit_Financial-Statements-Final. pdf

Example of Definition of Capital Acquisition ■ Open Signal/Portland Media Access Financial Policies include the following : A capital acquisition is an individual asset and/or class of assets that has a useful life of more than one year and a cost of $100 or more. Anticipated capital acquisitions shall be included in the normal budgetary process, and when necessary as part of the separate capital acquisition project plan.