vestal by chrstphr

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									                                      STATE OF NEW YORK
THOMAS P. DiNAPOLI                                                                STEVEN J. HANCOX
                           OFFICE OF THE STATE COMPTROLLER                      DEPUTY COMPTROLLER
   COMPTROLLER                         110 STATE STREET                   DIVISION OF LOCAL GOVERNMENT
                                    ALBANY, NEW YORK 12236                  AND SCHOOL ACCOUNTABILITY
                                                                         Tel: (518) 474-4037 Fax: (518) 486-6479



                                            January 25, 2008

Peter Andreasen, Supervisor
Town of Vestal
605 Vestal Parkway W.
Vestal, N.Y. 13850

Report No. P4-7-23

Dear Supervisor and Members of the Town Board:

One of the Office of the State Comptroller’s primary objectives is to identify areas where local
government officials can improve their operations and provide guidance and services that will
assist them in making those improvements. Our goals are to develop and promote short-term and
long-term strategies to enable and encourage local government officials to reduce costs, improve
service delivery and to account for and protect their entity’s assets.

In accordance with these goals, we conducted an audit of street lighting costs in six
municipalities in the Binghamton region to determine whether municipalities can reduce street
lighting costs by acquiring their street lighting system infrastructure from their local electric
utility company. We included the Town of Vestal (Town) in our audit. Within the scope of this
audit, we reviewed the Town’s current street lighting costs and developed estimates of annual
savings if the Town acquired its system. The audit period was January 1, 2005 through June 30,
2006.

This draft report of examination letter contains our findings and recommendations specific to the
Town of Vestal. We discussed the findings and recommendations with Town officials and
considered their comments in preparing this report. The Town’s response is attached to this
report in Appendix A. At the completion of our audit of the other municipalities, we will prepare
a global report that summarizes the significant issues we identified at all of the municipalities
audited.

Summary of Findings

If the Town were to acquire its street lighting system, our analysis shows that your town could
save an average of $110,283, net of potential debt service costs, over a twenty year period.
Assuming the repayment of debt after twenty years, average annual savings could increase to
$247,760. Town officials stated that they don’t have the necessary equipment to operate and
maintain the system but several private contractors are available to handle the general
maintenance and operation. Estimates of the cost of general maintenance and operation, as well
as other factors, are taken into account in the presentation of cost savings.

Background and Methodology

Municipalities in New York State generally rely on their local electric utility company to provide
street lighting services. The New York State Public Service Commission regulates the services
provided by these utility companies and approves the fees they charge. In upstate areas, these
services are generally provided through a leasing arrangement in which the utility company
retains ownership of the equipment and is responsible for its maintenance. In these situations,
equipment leasing charges are a significant component of street lighting costs.

The Town of Vestal’s street lighting expenditures totaled $260,161 for roughly 2,600 street
lights for the fiscal year ended December 31, 2006. New York State Electric and Gas (NYSEG),
the town’s electric utility company leases those lights and related equipment to the Town, as well
as maintains them. A significant portion of those expenditures, $199,051 (or 76.5%), was for
leasing equipment from the utility company.

As part of our audit procedures, we examined the Town’s street lighting vouchers for the 2006
fiscal year and interviewed appropriate Town officials. We interviewed Town officials to
determine whether or not the equipment and technical skills necessary to operate and maintain
the system on an in-house basis were available to the Town. We also contacted appropriate third
parties including staff of other New York State agencies, and officials from municipalities that
had recently acquired the street lighting systems within their municipal jurisdictions. We
estimated the purchase price for the town’s street lighting, as well as their maintenance and
repair costs, based on data obtained from the Town of Union. We also evaluated the possibility
of having the utility company maintain the system subsequent to a Town takeover by applying
the utility company’s tariff rates for maintaining customer-owned equipment to the existing
system. We then compared those cost estimates to current street lighting expenditures to identify
any savings. As an offset to the expected savings, we calculated the amount the Town would no
longer collect in special franchise tax revenue by applying the Town’s tax rate to the assessed
valuation of the utility company’s street lighting equipment. We obtained the assessed value of
the lights from the New York State Office of Real Property Services (ORPS).

We conducted this performance audit in accordance with generally accepted government
auditing standards (GAGAS). Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objectives.

Audit Results

As an alternative to leasing street lighting equipment from their local electric utility, some
municipalities have purchased their street lighting systems from the local electric utility
company. Where these buy-outs have occurred, municipalities reported substantial cost
reductions. In 1998, the Town of Union purchased its street lighting system. According to their



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annual update document filed with the Office of the State Comptroller, street lighting costs for
the fiscal year ended 2006 were only 40 percent of what they were in 1997 .

If the Town were to acquire its street lighting system at a reasonable price based on the Town of
Union’s 1998 price1, our analysis indicates potential average annual cost savings of $110,283.
Over a twenty-year period, cost savings could amount to over $2,205,653. Our calculations
assume the Town would borrow2 to fund the purchase of the equipment and therefore potential
cost savings are net of principal and interest costs.

Our calculation of potential cost savings for the twenty-year period during which principal and
interest payments resulting from the purchase of equipment would be repaid is:

                                                               Total for Years Amount for
                                                                1 Through 20    Year 21
                   Leasing Costs3                                  $5,083,547    $374,719
                     Less: Operation and Repairs4                      447,896     33,015
                     Less: Principal                                 1,006,186          -
                     Less: Interest5                                   422,598          -
                     Less: Foregone Tax Revenue6                       902,611     87,063
                     Less: Liability Insurance7                         98,603      6,881
                   Net Savings                                     $2,205,653    $247,760

Town officials do not believe they have the necessary equipment available in their fleet or the
technical skills required to operate and maintain the system on an in-house basis in a cost
effective manner. Therefore, we developed cost estimates for the Town to operate and maintain
the system using a private contractor, based on data provided from the Town of Union. Thus, if
the Town were to acquire its street lighting system at a purchase price based on the adjusted
Town of Union’s acquisition cost, our analysis of current charges and estimates of operational,
acquisition and financing costs indicates a significant potential savings averaging more than 40
percent of their current street lighting expenditures, if debt is issued to finance the purchase.




1
  We are using an inflation calculator maintained by the US Department of Labor Bureau of Labor statistics
(http://www.bls.gov/cpi/home.htm). They maintain a calculator that determines the 2007 value of the 1998 dollar.
2
  We understand interest rates will vary depending on factors such as bond rating. Our calculations of interest
assume a four percent interest rate.
3
  The difference between service class three and service class two charges for NYSEG customers.
4
  The costs, based on benchmark data, to maintain the lighting system beyond customer owned, company maintained
limitations. This would include pole or light fixture replacements.
5
  We understand interest rates will vary depending on factors such as bond rating. Our calculations of interest
assume a four percent interest rate.
6
  When the street lighting system is purchased the electric utility will no longer pay school and property taxes. We
have taken this into account and considered this a cost of purchasing the street lighting system.
7
  We expect municipalities to acquire liability insurance to protect them from litigation involving street lighting once
the system is acquired. This is based on the Town of Union’s costs per light.


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Recommendation:

       1.    Town officials should explore the possibility of acquiring the Town’s street lighting
             system. This would include further analysis of the potential savings associated
             with the alternate methods of maintaining the system and the feasibility of
             implementation.

The Town Board should consider our recommendations. Pursuant to Section 35 of the General
Municipal Law, the Town Board should prepare a plan of action that addresses the
recommendations in this report and forward the plan to our office within 90 days. We encourage
the Town Board to make this plan available for public review in the Town Clerk’s office. See
attached document for additional information on filing a corrective action plan. Our Office is
available to assist you upon request. If you have any further questions, please contact Mr. Patrick
Carbone at 607-721-8306.

                                             Sincerely,




                                             Steven J. Hancox
                                             Deputy Comptroller
                                             Office of the State Comptroller
                                             Division of Local Government
                                             and School Accountability

cc:    Laura McKane, Town Comptroller
       Connie Lightner, Town Clerk
       Gary Campo, Town Engineer




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                                          APPENDIX A

                            RESPONSE FROM TOWN OFFICIALS

The Town officials’ response to this audit can be found on the following page.




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