Opinion 88-50


This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.


MUNICIPAL FUNDS -- Capital Reserve Fund (use of moneys to fix dents and small holes, and clean and refinish the interior of a water storage tank)

GENERAL MUNICIPAL LAW, §6-c: Whether moneys in a capital reserve fund may be expended to fix dents and small holes, and clean and refinish the interior of a water storage tank depends on whether the work is more in the nature of rebuilding or completely overhauling than restoring the tank to ordinary efficient operating condition after decay and injury.

You ask whether a village may use moneys in a capital reserve fund to pay for work on a 15 year old, 250,000 gallon water storage tank. You state the work, which is expected to extend the tank's useful life by 10 years, would consist of the following:

(1) Draining the tank and removing sediment;

(2) Sandblasting or abraiding the interior of the tank

(3) Rewelding a number of dents and small holes in the tank; and

(4) Applying an epoxy type coating to the interior of the tank.

General Municipal Law (GML), §6-c authorizes villages to establish capital reserve funds for the purpose of financing all or part of the cost of the "construction, reconstruction or acquisition" of a specific or type of "capital improvement" (GML, §6-c[2]). A "capital improvement" includes "any physical public betterment or improvement" and related "furnishings, equipment, machinery or apparatus" acquired at the time when such betterment or improvement is constructed, reconstructed or acquired (GML, §6-c[1][b][1], [3]).

A 250,000 gallon water storage tank clearly is a "capital improvement" for purposes of section 6-c (see GML, §6-c[1][b][1]). Since the contemplated work involves neither the "construction" nor "acquisition" of the tank, capital reserve fund moneys may be expended for the contemplated work only if the work constitutes "reconstruction" of the tank (see GML, §6-c[2]).

We note first, by way of contrast, that GML, §6-d authorizes villages to establish repair reserve funds. Unlike capital reserve funds, which can only be used for the "construction, reconstruction or acquisition" of capital improvements, the moneys in a repair reservefund may be appropriated only for "repairs" of capital improvements or equipment which are of a type not occurring annually or at shorter intervals (GML, §6-d[3][a]). Moneys in a capital reserve fund may not be transferred into a repair reserve fund (GML, §6-c[9], [9-a]). Therefore, if the proposed work constitutes a "repair" rather than a "reconstruction", there is no statutory procedure to utilize the moneys in the capital reserve for this project.

This Office has on several occasions discussed the distinction between "repair" and "reconstruction". In 4 Opns St Comp, 1948, p 415, we concluded that "repair" means "to restore to a sound or good state after decay, injury, dilapidation or partial destruction", while "reconstruction" means "to construct again, to rebuild, to remodel, to form again or renew" (see also 4 Opns St Comp, 1948, p 484). In that opinion, we concluded that draining, cleaning, sandblasting and painting a "standpipe" (i.e. a high vertical pipe or reservoir for water, used to secure a uniform pressure) are repairs and not reconstruction. Similarly, in 27 Opns St Comp, 1971, p 184 we concluded that "metalizing" the interior of a water system standpipe also constitutes a "repair", rather than "reconstruction".

Subsequently, in 1982 Opns St Comp, No. 82-65, p 80, we again considered the distinction between a "repair" and "capital improvement" and stated as follows:

"... a 'capital improvement' connotes a more complete rebuilding, remodeling or major overhaul. To some extent, then, the distinction is a matter of the degree of work to be performed. In addition, an important element in finding a 'capital improvement' rather than a 'repair' is often whether old, worn materials are completely replaced with new materials".

We then concluded that the replacement of substantial portions of a truck's body, in conjunction with the acquisition of a new engine, constitutes a "capital improvement," rather than a "repair".

Finally, in 1984 Opns St Comp, No. 84-8, p 10, we considered the following analysis useful in distinguishing between "repair" and "capital" expenses:

"To repair is to restore to a sound state or to mend, while a replacement connotes a substitution. A repair is an expenditure for the purpose keeping the property in an ordinarily efficient operating condition. It does not add to the value of the property, nor does it appreciably prolong its life. It merely keeps the property in an operating condition over the probable useful life for which it was acquired. Expenditures for that purpose are distinguishable from those for replacements, alterations, improvements or additions which prolong the life of property, increase its value, or make it adaptable to a different use."

Pursuant to this analysis, we concluded that interior painting of buildings undertaken periodically every eight years constitutes a repair expense, rather than a capital expense.

As we stated in Opn No. 82-65, supra, "the distinction [between a reconstruction and a repair of a capital improvement] is a matter of the degree of work to be performed." When attempting to make this distinction, our opinions suggest that a number of factors must be considered, including whether old, worn materials are completely replaced, whether the work adds value to the property and whether the improvements will appreciably extend the useful life of the property. In this regard, we note that your inquiry states that the village expects the proposed improvements to extend the useful life of the tank. Your inquiry also suggests, however, that the contemplated work involves fixing dents and small holes, and cleaning and refinishing the interior of the water tank. Under these circumstances, we believe that a very close question of fact is presented as to whether the work, when viewed as a whole, is more in the nature of rebuilding or completely overhauling the tank or more like restoring the tank to an ordinary efficient operating condition after decay and injury. Therefore, since, in this instance, this Office is not in a position to resolve all relevant questions of fact, we believe that it is incumbent upon the village board of trustees, after taking into account the more complete facts at its disposal and the best interests of village taxpayers, to make a good faith determination as to whether the contemplated improvements are more properly characterized as a "reconstruction" or a "repair" of a capital improvement for purposes of GML,§§6-c and 6-d, respectively.

November 1, 1988
Terry D. Grosselfinger, Esq., Village Attorney
Village of Hillburn