The Real Cost Of Changing NYC Street Signs

There’s outrage today over a story that NYC needs to spend $27.5 million to replace street signs because they are uppercase and federal regulations require title case. They will also now be using the font ClearviewHwy rather than what I believe is Highway Gothic (I’m no font geek).

However the headline is misleading if you read the actual article. A little common sense and a trivial knowledge of accounting (you most likely learned this in High School) will make you scratch your head.

The article even says typical sign lasts about a 10 years. They have until 2018 to make the change, which is 8 years. Assuming an even distribution that would mean 80% of the signs would have been replaced by 2018 anyway due to their age. The remaining 20% would be nearing their replacement time anyway. 20% of $27.5 million is $5.5 million. That’s the cost of the signs that will be replaced prematurely.

Even that however is not correct since the city would almost definitely use straight-line depreciation on the cost of the signage. The reasoning for this is as follows: If you have the sign for 8 of the 10 year lifespan, you got 80% of the value. Each year is worth 10% of the value.

The formula goes something like this:

annual depreciation expense = (cost of fixed asset - residual value) / useful life in years of asset

Again we’ll assume an even distribution of the remaining 20% (that’s 10% replacement per year or about $2.75 million). We’ll also assume no residual value though they are likely sold for scrap metal and have some token value.

($2.75M-0)/10 = $275,000

Now 10% of the signs are being replaced 2 years early, another 10% are being replaced 1 year early. That’s 3 years of value lost. That means:

$275,000 x 3 = $825,000

The actual cost to the city is $825,000 in lost value due to prematurely replacing signage. Not $27.5 million. I guess you can throw in a little more for labor, though I doubt you’ll get $26M and change out of that.

There’s No Such Thing As A Free Lunch

Many think that tax rebates they will soon receive thanks to the economic stimulus package recently passed is “free money”. Reality is that unless you made less than $3,000 or suddenly have a change in income between now and next year, that’s likely not the case. As this MSN Money article puts it:

Remember, this is your money you’re getting back, and the rebate checks are basically an advance on your 2009 refund.

I wonder if this misconception of free cash causes more reckless spending.

That said it is possible to make a few dollars if it’s invested well as you’ll collect a nearly a full year’s interest on money the government would have otherwise been collecting interest on. So in reality, the free money is only the interest you “make” on it if you invested it well.