I've never understood this; it seems to be an arbitrary distinction. If one budget is short, why can't funds from one be shifted to the other? It seems like spiting the right hand to benefit the left, or something like that. Can anyone explain this to me?
Yes, the distinction is purely arbitrary. However, the distinction IS enshrined in both Law and Generally Accepted Accounting Principles (GAAP).
What follows is a VERY generalize explanation. The "real" explanation is quite arcane. There are many nuances and details to this entire issue, but in general, "it's against the law."
In most entities, there are two different "events" -- "capital expenditures" and "operating events."
Capital expenditures are something you do on a very rare basis -- buy a house, buy a car, etc. -- you are "investing capital" in a tangible thing with a fixed, or otherwise defined life expectancy (amortization period.)
Operating expenditures by contrast, are something which you do on a regular or periodic basis -- painting your house, buying gas for your car.
Generally speaking, Capital Expenditures are funded by some kind of debit, say a mortgage.
Operating expenditures on the other hand are paid for from current income, your salary.
On a personal basis, it is not unusual to rob Peter to pay Paul -- Taking out a Home Equity Loan to pay off Credit Card debit, is the best example; but that doesn't make it either the right or rational thing to do.
In the Corporate and Governmental world, Capital and Operating budgets are defined in GAAP and Law. Transferring funds from one to the other is exactly what Enron, WorldCom and Orange County California did!
In the world of Capital expenditures, they are normally funded by the sale of Bonds, especially on the Government side. These Bonds carry "Covenants" which define how the "proceeds" (money) may be expended. Similarly, normally, for a government to issue Bonds, they must be approved by the voters with a question on the order of ... "Should the City of Philadelphia incur indebtedness in the amount of $10 million dollars for the purpose of installing a Wireless Computer Network."
The end result of all this is that, while operating budgets can sometimes be used to pay off Capital budget items (as in "calling" bonds), Capital budgets can never be used to pay operating expenses. To do so would put the Bonds in immediate default and the creditors would expect to be paid their principle and interest immediately.
You will note that the question put before the voters is "installing" -- not "operating."
T.T.F.N. William H. Magill [EMAIL PROTECTED] [EMAIL PROTECTED] [EMAIL PROTECTED]
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