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Steve O'Keeffe

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Posted: 8/29/2012 - 4 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

IT by the Cup?

How to pay for Fed IT with shrinking budgets? With all the talk of cloud, how’re we IT nerds lining up with the bean counters? Is IT swallowing the new by-the-cup OpEx funding flavor poured out in the President’s FY2013 budget brew?
A recent MeriTalk study, the Color of Money, provides new insight on the much ballyhooed CapEx/OpEx shift in Uncle Sam’s funding. The bean counters get it. Seventy percent of finance pros think OpEx funding will enhance Federal IT and 59 percent assert that OpEx will enable agencies to maintain a better grasp on overall IT portfolios.
IT’s not signing up so fast for the taste test. Just 36 percent of Federal IT pros are considering the OpEx funding jump. Remarkably, just 21 percent of IT pros are oblivious that a CapEx/OpEx switch is possible - let alone encouraged - in the President’s FY2013 budget.
Clear as Mud…
So, I hear you say, what qualifies as OpEx? Can agencies just lease the servers instead of buying the kettle? The short answer - depends…
You need to look at the Financial Accounting Standards Board - FASB 13 - regulations to make sense of it. And good luck. FASB 13 tells us leases need to be reported as capital expenses if:
1.     It Ain’t Depreciating Quickly: The present value of the lease payments is at least 90 percent of the fair market value of the asset at the start of the lease
2.     Agency Gets the Asset: Lease transfers ownership of the asset to the lessee by end of term of lease
3.     Too Long: Lease term is 75 percent or more of the estimated economic life of the asset
4.     Too Aggressive a Depreciation Schedule: Lessee can purchase the asset at a price below fair market value when the lease expires
And, if that’s not clear, you can take comfort from the fact that FASB is currently rewriting the standards for lease accounting.
Who needs FASB anyway? I hear you say. Sure you’re aware that Federal agencies have their own Statements of Federal Financial Accounting Concepts under the Federal Accounting Standards Advisory Board (FASAB). That said, flip to concept five in your handy dandy FASAB handbook and you will learn that CapEx vs. OpEx is tied up in a discussion about what constitutes a Federal asset. Don’t worry though, those guidelines are expected to change in the near future too.

Reading the tea leaves from the study, we IT nerds need to sit down for a cup of coffee with the bean counters. The White House has to clarify and educate if the CapEx/OpEx directive is to become more than coffee talk. And, last but not least, we need clearer guidance on what qualifies as OpEx - this stuff is confusing. Change is hard - but we’re headed into a fiscal desert, and OpEx is the only tipple to slake IT’s thirst. Time to hold the nose and drink up - we’ll soon get used to the new taste.

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