N.Y. Comp. Codes R. & Regs. tit. 9, § 1647-4.2 – Classification of replacements.

(a) In addition to replacements, other expenditures in the nature of repairs, maintenance and renewals (RM&R) may be made to maintain or restore the utility, function or revenue producing capacity of a project. Such expenditures, however, are charged to expense, whereas expenditures for replacements are charged to the reserve. Theoretical criteria for distinguishing between RM&R on the one hand, and replacements, on the other, have been stated in the preamble to the definitions of the 4400, Repairs and Maintenance, group of expense accounts (see Part 1641). In view of the practical difficulties in their application, the division does not prescribe the use of such criteria, except as a guide, and bases its classification on a system of selection and predetermination, as follows:
1. (1) Schedule of replacement reserve requirements. The first step in the system of classification is the preparation by the local agency of a schedule of replacement reserve requirements (see § 1647-4.3). This schedule is submitted for division review and approval upon substantial completion of the project and lists the assets which, it is intended, will be replaced over the life of the project and for which reserves are to be accumulated by periodical provisions. It is evident that, of the aggregate of assets comprising a project, a selection will necessarily have to be made of the assets to be included in the schedule of replacement reserve requirements, inasmuch as it is the stated purpose of the reserve to provide funds only for such replacements as are required to maintain or restore the utility, function or revenue-producing capacity of the project over its statutory life.
2. (2) Operating budget. The next step in the system of classification is the preparation of the annual operating budget. Each operating budget submitted to the division for review and approval will include a supplementary schedule of replacements which shall give a detailed description and cost estimate of all replacements planned for the budget year. It is evident that, in the preparation of the operating budget, the local agency will be guided by the schedule of replacement reserve requirements in that the classes of assets budgeted to be replaced during a given budget year will be selected from the list of assets scheduled to be replaced over the life of the project as per the schedule of replacement reserve requirements, as revised to date. In the event that the need for an unanticipated replacement occurs during the year, the local agency shall request division approval of a corresponding amendment of the operating budget.
3. (3) Classification. The final step in the system of classification is to classify as replacements, to be charged to account 2510, Replacement Reserve, all expenditures for items listed on the schedule of replacements with the approved operating budget, as amended, and to classify as RM&R expenses, to be charged to the 4400 group of expense accounts, all other expenditures for maintaining or restoring the utility, function and revenue-producing capacity of the project.
(b) The division exercises control over the classification of expenditures for repairs, maintenance, renewals and replacements through its approval and periodical review of the schedule of replacement reserve requirements, its review and approval of the annual operating budgets and amendments thereto, and its office review and field audit of the actual expenditures and classification thereof by the local agency.