!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?

@>@A

1
!"#$%&'() +,- .&'/- 0(1-2 "3 4$-&%+'() !"5+5 6.04!7 %(1 +,-
89: 0(/"#- %(1 ;2$-(5- <+=1>

Bi. }ames F. Buuson
Naich 21, 2u14
The New Yoik City Rent uuiuelines Boaiu (RuB) uses two methous foi measuiing
the change in the annual 0peiations anu Naintenance (0&N) expenses paiu by
owneis of ient stabilizeu units in New Yoik City.
The RuB !"#$%& (") *+,&"-& ./0)1 2!3*4 pioviues an analysis of expenses as
iepoiteu by owneis in the Real Piopeity Income anu Expense (RPIE) statements as
iequiieu by Local Law 6S, enacteu in 1986. These expenses aie submitteu annually
to the NYC Bepaitment of Finance anu iepiesent iepoiteu expenses by most
lanuloius with stabilizeu units baseu on the most iecent completeu calenuai yeai at
the time of filing. As with any uata collection effoit, theie aie some conceins with
uata quality anu accuiacy (uiscusseu fuithei below). Bowevei, these iepoiteu
expenses shoulu be close to the actual 0&N costs foi the iepoiting builuings, anu
can be useu to estimate the 0&N costs foi all stabilizeu builuings. In geneial, the I&E
uata shoulu be iepiesentative of actual expense changes, at least foi the builuings
with 11 oi moie units which must submit full RPIE iepoits annually. Bowevei, it
takes about a yeai foi the I&E uata to be maue available by the Bepaitment of
Finance. Foi example, the most iecent I&E uata that coulu be useu foi the 2u1S
uuiuelines was fiom 2u11.
The RuB 567#& !")&+ $8 9,&6(/7": ;$-/- 25!9;4 gatheis piices foi a maiket basket
of goous anu seivices useu in the opeiation anu maintenance of ient stabilizeu
builuings in NYC anu applies those to estimate cost changes fiom one yeai to the
next. This is the same appioach useu by the Consumei Piice Inuex (CPI) anu othei
similai inuices, but foi the goous anu seivices typically puichaseu by builuing
owneis. The key assumption heie is that the actual quantities of the vaiious items
puichaseu uo not change significantly ovei time, so the quantities puichaseu in the
oiiginal suivey aie close to those puichaseu now.
The PI0C is composeu of '+-#8 which aie inuiviuually piiceu anu aie then gioupeu
into 5"#$"(-(+8 such as Taxes, Laboi, anu Contiactoi Seivices. The I&E pioviues
uata foi a similai, but slightly uiffeient, set of 5"#$"(-(+8. The PI0C measuies
changes in piices of these items, not actual expenses. But it is timely - piice changes
thiough Naich 2u1S weie useu to help ueteimine the 2u1S uuiuelines.
The iates of inciease in oveiall opeiating costs fiom the I&E have been smallei than
those shown by the PI0C in iecent yeais. That leaus to thiee questions:
Bow uiffeient aie the PI0C anu I&E estimates.
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

"
#$% &'( )$(*( )+, -./-0(* /-11('(.)2
3,+ *$,45/ )$( 6789 :( -;<',=(/2
>$-* &.&5%*-* 4*(* /&)& 1',; )$( ?@@"A"B?" 6789C +$-0$ 0,=(' (*)-;&)(/ 0,*)
0$&.D(* 1',; E<'-5 ?@@" )$',4D$ F&'0$ "B?"G H,' )$( 7IJC -) 4*(* )$( 1-5-.D* 1',;
?@@? )$',4D$ "B?? K+-)$ )$( (L0(<)-,. ,1 "BBMC +$('( ., 4*(145 /&)& +('(
&=&-5&:5(NG >$-* /&)& -* 1',; OPQ '(0,'/* &./ -* -.054/(/ -. E<<(./-L ? &./
E<<(./-L "G
!"# %&''()(*+ ,)( +-( ./01 ,*% /23 (4+&5,+(46
E *-;<5( 0,;<,4./ D',+)$ ;,/(5 +&* 1-) ), )$( ,=('&55 )-;(A*('-(* /&)& &./ ), )$(
0,;<,.(.)A:%A0,;<,.(.) )-;( *('-(*G >$( ;,/(5 &**4;(* )$&) )$( 0,*) (&0$ %(&'
+-55 :( QR $-D$(' )$&. -. )$( <'(=-,4* %(&' &./ (*)-;&)(* )$( =&54( 1,' LG H,';&55%C
0,*) S E T K? U QN V ) +$('( E &./ Q &'( (*)-;&)(/ 0,(11-0-(.)* &./ ) -* )$( %(&' &1)('
?@@?G >$-* ;,/(5 <',=-/(* '(D'(**-,. *)&)-*)-0* -.054/-.D )$( OV" 1,' D,,/.(** ,1 1-)
&./ )$( W)&./&'/ J'','* 1,' (&0$ 0,(11-0-(.)G >$( )&:5( *$,+* & *4;;&'% ,1 )$(
'(*45)*G H455 '(*45)* &'( *$,+. -. E<<(./-L MG
IE
component
Avg. Rate
per year +/- PIOC component
Avg. Rate
per year +/-
Taxes 4.81% 0.88% Taxes 5.77% 0.59%
Labor 2.82% 0.25% Labor 3.66% 0.11%
Fuel 6.16% 1.78% Fuel Oil 8.35% 1.47%
dUtilities 4.35% 0.58% Utilities 5.20% 0.48%
Admin 4.63% 0.57% Management 4.34% 0.16%
Insurance 4.18% 1.12% Insurance 6.47% 1.08%
Maintenance 2.79% 0.50% Contractor 3.79% 0.20%
Misc. 4.61% 2.15% Parts & Supplies 1.88% 0.20%
Replacement 1.73% 0.24%
Total 4.28% 0.56% Total 5.21% 0.44%

8=('&55C )$( 6789 D'(+C ,. &=('&D(C :% &:,4) XG"R <(' %(&' /4'-.D )$-* "?A%(&'
<('-,/ &./ )$( 7IJ D'(+ :% &:,4) BG@ <('0(.)&D( <,-.)* 5(**C YGMRG >$( ZU[AZ
0,54;. -* )+-0( )$( *)&./&'/ /(=-&)-,.C *, -) D-=(* & ',4D$ -/(& ,1 )$( &004'&0% ,1 )$(
(*)-;&)(G #$-5( -) +,45/ :( (&*% ), 0&5045&)( )$( *)&)-*)-0&5 *-D.-1-0&.0( ,1 )$(
/-11('(.0(C ,.( *$,45/ :( *\(<)-0&5 ,1 <4))-.D ),, ;40$ )'4*) -. *)&)-*)-0&5 )(*)* +$(.
)$( *&;<5( *-]( -* *;&55 &./ )$( /&)& -* $-D$5% 0,''(5&)(/
W)-55C )$('( -* *,;( /-11('(.0( &./ )$( 6789 0$&.D(* &<<(&' ), :( 5&'D(' )$&. )$(
0$&.D(* -. (L<(.*(* *$,+. :% )$( 7IJ /&)&G
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

S
Regiessions weie also iun against the fiist half anu seconu half of the peiiou. In the
fiist half, the estimateu giowth iate foi the PI0C is 2.9% annually anu the estimateu
giowth iate foi the I&E is S.u%. In the seconu half, the estimateu iate foi the PI0C is
6.2% annually anu the I&E is 4.S%. So the uata suggests that the uiveigence
between the two appioaches is acceleiating.
To get a bettei unueistanuing between the uiffeiences of these two measuiements
of expense, we can examine the uiffeiences in !""#!$ giowth iates between the
inuiviuual components. In teims of the components,
Taxes uiffei by about 1%, which is somewhat suipiising because both
methous cuiiently use calculations baseu on uata fiom the Bepaitment of
Finance. But the eaily yeais of the I&E calculations weie baseu on iepoiteu
tax payments, so the seiies may not be uiiectly compaiable.
Laboi coulu be influenceu by seveial factois, incluuing the ielative
pievalence of union anu non-union laboi. In any case, the giowth iate
estimateu fiom the PI0C uata is about u.8% highei than the I&E.
The giowth iate foi Fuel is 2.2% highei in the PI0C than in the I&E, though
both aie volatile because of how much fuel piices change. (This is shown in
the laigei stanuaiu eiioi values).
0tilities costs giow about u.8% moie in the PI0C than in the I&E, anu again
these values aie faiily volatile because of the effects of fuel piices.
Auministiation costs in the I&E giow slightly fastei than Nanagement in the
PI0C, by about u.S%. This may be because of the two appioaches classify the
costs that aie pait of "Auministiation" oi "Nanagement".
Insuiance is 2.S% highei in the PI0C, but insuiance piices have also been
volatile anu the PI0C collects actual costs foi a sample of builuings. In the
past, some analyses have been uone on the effects of changes in coveiage.
Naintenance anu Niscellaneous in the I&E come closest to matching
Contiactoi Seivices, Paits & Supplies, anu Replacement Costs in the PI0C.
But the match isn't all that goou fiom one to anothei. Theiefoie, it is uifficult
to make any conclusions about how uiffeient the estimates aie.
!"# %&' ("'&' )*++'&',-'./
Both appioaches attempt to measuie changes in costs. Both appioaches also have
limitations. It's impoitant to ieview those limitations anu then uevelop hypotheses
about why the seiies uiveige. Foi some of the possible ieasons, it's also possible to
uo some testing of the hypotheses.
01234 5&6-'.. %,) 7*8*(%(*6,.
0wneis weie initially suiveyeu about theii uetaileu expenuituies on vaiious goous
anu seivices. These weie categoiizeu into the nine PI0C components anu, within
each component, to a set of items. Weights weie then calculateu foi the items. If, in
that oiiginal suivey, owneis spent 1u% of theii 0&N buuget on insuiance, then the
"expenuituie weight" foi insuiance was 1u%. If Auministiative Costs was 1S%, then
the categoiy woulu get a weight of 1S%. Thus, each of the nine components weie
weighteu accoiuingly.
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

4
The same piocess was useu to iuentify weights foi the items in each component. Foi
example, if half of the oiiginal expenuituies in the Auministiative Costs component
weie foi Nanagement Fees anu 2u% foi Legal Seivices, the item weights woulu be
Su% anu 2u% iespectively.
At that point, specifications weie cieateu foi iepiesentative expenuituies foi each
item, foi example painting a one-beuioom apaitment. Anu cuiient piices weie
collecteu foi each of those specifications.
The next yeai, new piices weie collecteu foi each specification (spec), along with
confiimation of pievious piices to impiove uata quality. By using the change in each
piice anu the weight on that paiticulai item, the uata coulu be iolleu up to oveiall
estimates of the Piice Inuex.
But theie is one moie step. Aftei completing the Piice Inuex each yeai, the change in
piices aie useu to iecalculate the expenuituie weights foi the next yeai. Consiuei a
simple example, with a piice inuex containing two components, each oiiginally
compiising Su% of expenuituies:
Fiist yeai
o Painting($Suu) + Plumbing($Suu)= Total Expenses($1,uuu)
Seconu yeai
o Expenuituie weight foi painting = $Suu$1uuu = Su%
o Expenuituie weight foi plumbing = $Suu$1uuu = Su%
o Painting, $6uu
o Plumbing, $Suu
o Total Expense, $1,1uu
o Piice inuex foi painting = 2u% inciease
o Piice inuex foi plumbing = u% inciease
o 0veiall piice inuex =$11uu$1uuu = 1u% inciease
Thiiu yeai
o Expenuituie weight foi painting = $6uu$11uu = SS.S%
o Expenuituie weight foi plumbing = $Suu$11uu = 4S.S%
This iecalculation of weights allows the Piice Inuex to incluue the effects of all
pievious piice changes in the bieakuown of the ownei's expenuituies.
Bowevei, it is only the effects of !"#$% changes that get incluueu in the weights. If
owneis iesponueu to these piices oi othei factois by changing &'( *+$& they buy,
foi example ielatively less painting oi ielatively moie plumbing, the yeai-by-yeai
PI0C woulu not captuie that change. That iequiies analyzing the full iange of
expenses, which woulu necessitate uoing an expenuituie suivey each yeai.
In a puie piice inuex, this is the methouology. The PI0C is actually a hybiiu - most
specifications aie piice-baseu, but some items (ieal estate taxes, management fees,
insuiance, non-union laboi) aie baseu on suiveys of actual expenses by owneis, oi
uata fiom othei agencies. Also, estimates foi fuel oil anu natuial gas foi heating aie
baseu on a combination of monthly piices anu tempeiatuies, which affect the
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

S
amount of fuel neeueu each month. In geneial, though, the oveiall methouology is a
piice inuex.
Theie aie seveial ways in which the PI0C piice changes might not be iepiesentative
of actual changes in expenses, especially ovei a long peiiou:
The item specifications may no longei be iepiesentative of what owneis
actually buy. Foi example, the PI0C incluues piices foi Lease Foims as
iepiesentative of geneial office supplies. It has a veiy small weight anu
piactically no effect on the oveiall PI0C, anu few owneis buy piepiinteu
Lease Foims anymoie, they use uownloauable veisions.
The item weights within the nine components coulu be incoiiect. Foi
example, the shift of fuel use away fiom #6 oil towaius #2 anu #4 oil shoulu
affect the ielative weights of those piice changes.
The weights of the components coulu have shifteu. A shift fiom oil to gas
heating shoulu leau to highei weights foi 0tilities anu lowei weights foi Fuel.
Finally, owneis coulu change the oveiall quantities of what they buy. The
PI0C is uesigneu to show the change in piices. But costs aie baseu on "piice
times quantity", anu the quantity can change. Foi example, owneis might
invest in eneigy conseivation impiovements anu ieuuce theii quantity (anu
cost) foi fuel. But the PI0C woulu only show the change in fuel piices, not the
change in oveiall cost.

All of these limitations have little effect in any paiticulai yeai because, in a single
yeai, theie aie only a limiteu numbei of aujustments maue by owneis in theii
buying patteins. 0vei time, these aujustments will builu up. A uetaileu compaiison
between 2u1S anu 2u12 in what owneis puichaseu woulu piobably show only
minoi uiffeiences. But theie woulu be majoi uiffeiences in a compaiison between
2u1S anu 198S, the yeai of the last PI0C expenuituie suivey. Anu those 198S
expenuituies aie the basis foi the quantities that unueilie the PI0C.
Any time owneis can become moie efficient anu use fewei goous anu seivices,
whethei it's by auveitising online insteau of in the newspapeis, oi by competitive
biuuing to change insuiance caiiieis, they will ieuuce theii costs. The PI0C will not
automatically captuie those efficiencies.
!"#$ &'()*++ ,-. /0102,20(-+
0wneis must submit categoiizeu iepoits, RPIE statements, of theii expenses
annually, foi builuings with 11 oi moie units. This uata is piocesseu anu
summaiizeu, actual tax billings aie auueu, anu the summaiy infoimation is pioviueu
to the Rent uuiuelines Boaiu. The RuB staff then uses a set of weights ueiiveu fiom
the B":8'() %(1 C%5%(5; 9:&D-; (BvS) to uevelop estimateu costs by boiough anu
citywiue.
Theie aie five conceins with the I&E uata foi this analysis:
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

6
Since the I&E stuuy uoes not incluue 6-1u unit builuings, the iesults coulu be
uistoiteu in some way.
The most iecent I&E uata is maue available about a yeai aftei the enu of the
iepoiting peiiou, so it is somewhat out of uate. Foi example, the I&E uata
available foi the 2u1S uuiuelines was fiom calenuai yeai 2u11.
0wneis may make eiiois in classifying theii expenses, paiticulaily in
ueciuing whethei a paiticulai expense is iepoitable as an opeiating cost oi
shoulu not be iepoiteu.
The I&E methouology has changeu ovei time, with impioveu uata collection,
somewhat mouifieu classification iules, anu use of tax bills iathei than
iepoiteu taxes. So the uata - anu ielateu yeai-to-yeai cost incieases - may
not ieally be compaiable.
While all builuings with 11 oi moie stabilizeu units aie iequiieu to file RPIE
uata, compliance is nevei 1uu%, anu some uata is always incomplete,
inconsistent, oi otheiwise unusable. Theie coulu also be eiiois intiouuceu
by weighting since the RuB only ieceives summaiy infoimation by boiough
anu builuing size class, not the iaw uata foi each of the iepoiting builuings.
!"# %&' ()**'+',-'. ), %&' /00+"/-&'. /**'-% %&' +'.12%.
Theie aie seveial possible ieasons foi the uiffeiences between the PI0C anu the I&E
that can be analyzeu given the uata.
Possibility 1: The I&E might not be iepiesentative because it excluues 6-1u unit
builuings.
0veiall, 6-1u unit builuings make up 42.1% of the stabilizeu B:'C1'()8 in the 2u1S
PI0C tax sample, but only 9.2% of the stabilizeu iesiuential :('+8. 0vei 9u% of those
6-1u unit builuings weie built befoie 1947.
If the costs foi smallei builuings weie incieasing moie quickly than foi laigei
builuings, the I&E might unueiestimate total costs. Theie is limiteu infoimation in
the I&E foi analyzing this, but theie aie a few inuicatois.
Fiist, we can look at the cost incieases foi othei similai, but laigei, builuings in the
I&E stuuy. 0vei the past foui yeais, the cumulative cost inciease foi pie-47
builuings in the I&E have been:
11-19 units: +1u.S1%
2u-99 units: +12.16%
1uu+ units: +1u.Su%
If the 6-1u unit builuings hau theii costs incieasing much fastei than the I&E as a
whole, one might expect the inciease foi 11-19 unit builuings to be moie than that
foi 2u-99 unit builuings, anu both to be moie than the inciease foi 1uu+ unit
builuings. In this limiteu analysis, theie is no such pattein.
Seconu, consiuei the fact that the smallei builuings aie unuei 1u% of the total
population, which means that theii costs woulu have to inciease much fastei than
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

"
#$% &'(#( )'* +,*-%* ./0+102- #' *,0(% #$% -*'3#$ *,#% )'* ,++ ./0+102-(4 5'2(01%* ,
(067+0)0%1 %8,67+% 3$%*% .%#3%%2 9%,* : ,21 9%,* ; &'(#( *'(% 02 ,++ ./0+102-( .9
8<= )*'6 >>>> #' ?:@A@B
C,*-% ./0+102-( DE:< ') ,++ /20#(F
o &'(# 7%* /20# 02 9%,* :B ?:@@@
o &'(# 7%* /20# 02 9%,* ;B ?:@G@
HIJ5 -*'3#$ *,#% )*'6 9%,* : #' 9%,* ;
K6,++%* ./0+102-( DE< ') ,++ /20#(F
o 5'(# 7%* /20# 02 9%,* :B ?:@@@
o 5,+&/+,#%1 &'(# 7%* /20# 02 9%,* ;= #' 6,L% #$% 'M%*,++ ,M%*,-% )'* ,++
./0+102-( ?:@A@B ?::A:
o 5,+&/+,#%1 -*'3#$ *,#% *%N/0*%1 )'* (6,++ ./0+102-(B :A4:<
I2 -%2%*,+= 0# 3'/+1 #,L% %8#*,'*102,*9 -*'3#$ *,#%( 02 #$% '7%*,#02- &'(#( )'* (6,++
./0+102-( #' *,0(% #$% ,22/,+ -*'3#$ *,#% )'/21 .9 #$% IOP (#/19 , 6%,202-)/+
,6'/2#4 Q' 6,#&$ #$% HIJ5= #$% -*'3#$ *,#% 02 ,22/,+ '7%*,#02- &'(#( )'* (6,++
./0+102-( 3'/+1 $,M% #' .% "R:@< $0-$%* #$,2 #$% IOP M,+/%( )'* +,*-%* ./0+102-(4
S21 #$'(% -*'3#$ *,#%( 02 &'(#( ,*% 2'# (/(#,02,.+%4 T'* %8,67+%= 0) #$% ,22/,+
'7%*,#02- &'(# 7%* /20# )'* UR:@ /20# ./0+102-( $,1 .%%2 ,# #$% &0#9 ,M%*,-% ') ?V"@
02 :EE:= ,21 -*%3 ,# :@< 7%* 9%,*= 0# 3'/+1 $,M% .%%2 ,.'/# ?;A@@W/20# 02 ;@::4
Q$0*1= '32%*( ') (6,++%* ./0+102-( 6,9 (/.60# ,2 XPYZ M%*(0'2 ') #$% [HIP 30#$
+060#%1 02)'*6,#0'24 Q$% (,67+%( ,*% ),0*+9 (6,++= ,21 (%+)R(%+%&#%1= ./# #$%9 ($'3
,M%*,-% '7%*,#02- &'(#( ,*'/21 ?E@@W/20# 7%* 6'2#$ )'* #$% 7,(# )%3 9%,*(B
;@@\B ?UU@4A\ 7%* /20# 7%* 6'2#$
;@@EB ?E\@4U"
;@:@B ?E;V4E;
;@::B ?E@G4@\
;@:;B ?E"@4\V
Q$0( 0( ,.'/# ?:@@W6'2#$ $0-$%* #$,2 #$% IOP (#/19 ($'3( )'* +,*-%* ./0+102-(4 I)
#$0( 1,#, 3,( )*'6 , (&0%2#0)0& (,67+%= #$% +,*-% 02&*%,(% .%#3%%2 ;@@\ ,21 ;@@E
3'/+1 2%%1 #' .% ,2,+9]%1 )/*#$%*= ,21 #$% (#%,19 &'(#( )'* ;@@ER;@:; 3'/+1 ,+('
.% (/*7*0(02-4 ^0#$ (%+)R(%+%&#%1 /2,/10#%1 1,#,= 0# 0( $,*1 #' 6,L% ,29 ('+01
&'2&+/(0'2(4 I# (%%6( M%*9 +0L%+9 #$,# '7%*,#02- &'(#( ,*% (060+,* )'* #$% (6,++%* ,21
+,*-%* ./0+102-(= #$'/-$ %87%210#/*% 7,##%*2( &'/+1 .% M%*9 10))%*%2#4
Q$% UR:@ /20# ./0+102-( 6,9 '* 6,9 2'# $,M% '7%*,#02- &'(#( 7%* /20# #$,# ,*%
$0-$%* #$,2 #$% +,*-%* ./0+102-( 02&+/1%1 02 #$% IOP (#/194 _/# #$%*% 0( 2' %M01%2&%
02 #$0( 1,#, #$,# #$% *,#% ') -*'3#$ 02 #$%0* '7%*,#02- &'(#( 0( &'2(0(#%2#+9 $0-$%*
#$,2 #$% *,#% )'* +,*-%* ./0+102-(4
H'((0.0+0#9 ;B J32%*( 6,9 .% 'M%*R '* /21%**%7'*#02- #$%0* &'(#( )'* #$% IOP4
Q$% L%9 7'02# $%*% 0( #$,# #$0( ,2,+9(0( 0( &'2&%*2%1 30#$ -*'3#$ *,#%(= 2'# 2'602,+
%87%210#/*%(4 I) '32%*( 3%*% #' &'2(0(#%2#+9 'M%*R '* /21%*R*%7'*# #$%0*
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

8
expenuituies foi the I&E stuuy, that woulu have only a minoi effect on the giowth
iate. Foi example, if owneis weie to consistently excluue theii costs foi natuial gas,
it woulu affect the aveiage cost pei unit in the I&E stuuy. But it woulu only affect the
giowth iate in opeiating costs when the yeai-to-yeai change in gas costs was much
moie, oi much less, than in the costs foi othei goous.
Bowevei, ovei- oi unueiiepoiting coulu affect the long-teim giowth iate if the
iepoiting iules changeu significantly ovei time. It is possible, but it woulu have to be
a laige change. Foi example, consiuei a scenaiio wheie:
neaily all owneis incluueu a type of opeiating cost in the fiist five yeais of
RPIE iepoiting, 1991-199S
half uiu so in the next five yeais, 1996-2uuu
one-quaitei uiu so fiom 2uu1-2uuS
none uiu so aftei 2uuS

A pattein like that woulu aitificially ieuuce the calculateu giowth iate foi the I&E
uata. Since each peiiou woulu ieuefine what was consiueieu an "opeiating cost," the
iesults woulu not ieally be compaiable fiom yeai to yeai.
It has been suggesteu that the iules foi RPIE iepoiting have become moie stiict
ovei the past two uecaues so that some moie iecent expenses may be excluueu oi
classifieu as capital iathei than opeiating costs. But even if that is tiue, consiuei
what woulu be iequiieu to affect the calculateu giowth iate fiom the I&E uata. To
inciease that giowth iate by u.9%, appioximately 2u% of the I&E "opeiating costs"
in the eaily yeais woulu have to have been ovei-iepoiting of invaliu costs. So, while
this is a concein, it uoes not appeai to be a majoi contiibutoi to the uiffeience
between the two stuuies.
Possibility S: 0niepiesentative PI0C specifications
The PI0C items coulu be anothei souice of uiffeience. The items in each categoiy
aie supposeu to be iepiesentative of what owneis buy. If they'ie not, anu if the tiue
piices of the items aie incieasing at a slowei iate than the PI0C items, then the PI0C
coulu be oveistateu. But the items that aie most pioblematic aie also the ones with
the lowest weights in the PI0C. Foi example, if few people buy lanuline telephones
any moie, anu the costs of cell phones, which aie not collecteu foi use in the PI0C,
weie to inciease moie slowly than the cost of lanulines, the effect of omitting the
costs of cell phones on the oveiall Piice Inuex woulu be minimal. Theiefoie,
uniepiesentative PI0C specifications aie not likely to be majoi contiibutois to the
uiffeience.
Possibility 4: Piice incieases anu Expense incieases aie not the same
The PI0C estimates changes in piices. But any business ownei will tiy to limit theii
costs. They uo this by mouifying what they buy. So, as piices foi one goou goes up,
owneis will shift to othei piouucts oi ieuuce quantities to tiy to limit theii costs. All
else being equal, a piice inuex will inciease fastei than actual costs. Bowevei, this
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

9
effect shoulu be faiily constant, since owneis will make those aujustments eveiy
yeai.
Possibility S: 0wneis shift theii expenuituie patteins ovei time
The PI0C assumes that owneis buy the same maiket basket of goous anu seivices as
they uiu in the oiiginal expenuituie suivey. While it uses actual costs in a few
impoitant aieas - taxes, management fees, insuiance, anu non-union laboi - it
assumes constant quantities foi all the piiceu goous. But those quantities have
unuoubteuly changeu ovei time. This is likely to be the majoi souice of the
uiffeiences between the two stuuies since it is the one that best explains the way the
two estimates aie getting less anu less similai as time goes on.
!"# %&'() *&)+) ,-. /) "*&)+ 0"1*+'/2*"+3# *&) 4). -55)-+3 *" /) 0&-16)3 '1
&"% "%1)+3 0&-16) *&)'+ 35)17'16 '1 +)35"13) *" 0&-16)3 '1 5+'0)3 -17 *&)
6""73 -17 3)+8'0)3 *&-* -+) -8-'(-/()9
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Theie aie thiee aspects of the PI0C which can be impioveu using the I&E anu othei
uata.
0veiall expenuituie weights
Item weights
Item specifications
-4*3&77 *82*'50(93* #*0:)(;
A piice inuex, like the PI0C, is an excellent tool foi tiacking shoit-teim changes in
the piices of a set of goous anu seivices.
But it neeus to be baseu on ieal expenuituies peiiouically oi it will become
incieasingly unconnecteu to the ieal maiket basket being puichaseu.
The I&E pioviues those ieal expenuituies, but the uata is ovei a yeai olu when the
RuB uoes its analysis anu ueteimines the guiuelines. In cases wheie theie is a majoi
change in piices - an eneigy shock, foi example, the Boaiu neeus to captuie piice
changes soonei.
So, one option woulu be to use the expenuituies iuentifieu in the I&E to cieate
component weights foi the PI0C. Foi example, the 2u1S I&E stuuy has the following
component weights (compaieu to the 2u1S PI0C component weights):

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2013 I&E
Component Weight
2013 PIOC
Component Weight
Taxes 26.5% Taxes 29.6%
Labor 11.4% Labor 12.9%
Fuel 13.9% Fuel 13.2%
Utilities 11.3% Utilities 16.3%
Admin 16.3% Admin 7.2%
Insurance 12.7% Insurance 6.8%
Maintenance 4.6% Contractor 12.0%
Other 3.3% Parts & Supplies 1.4%
Replacement 0.6%

Theie aie two technical issues involveu in using the I&E weights. Fiist, the
inuiviuual items in the PI0C woulu neeu to be allocateu to the coiiesponuing I&E
components. Appenuix 4 pioviues a possible allocation using the uetaileu RPIE
iepoiting lines; an allocation using the summaiieu components fiom the I&E stuuy
woulu be slightly simplei - foi example, it woulu combine the "Light anu Powei"
anu "Watei anu Sewei" lines into a "0tilities" component.
Seconu, the I&E weights aie fiom a yeai eailiei than the PI0C. So those uata shoulu
be upuateu baseu on the pievious PI0C piices. Foi example, foi 2u14 this woulu
involve:
Taking the I&E costs pei component fiom 2u12
0puating those to estimateu 2u1S costs baseu on the 2u1S PI0C
Aujusting the weights baseu on those 2u1S costs
As with the PI0C weights now, if the piices foi one component incieaseu moie than
foi anothei component, its ielative weight in the 2u14 PI0C woulu inciease.
This appioach woulu mean that the expenuituie weights foi the PI0C components
woulu nevei be moie than two yeais out of uate, which woulu be a majoi
impiovement.
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The I&E uata uoes not pioviue any uetaileu bieakuown of what was puichaseu
within any of the opeiating cost components. Bowevei, in ceitain ciitical aieas, the
PI0C has alieauy been using the annual suivey uata to mouify item weights.
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

11
A iecent PI0C suivey iequesteu infoimation on expenses foi natuial gas anu oil.
These weie useu to mouify the item weights foi the associateu specifications baseu
on actual expenuituie patteins. This appioach shoulu be continueu. The annual
suivey shoulu collect uata foi one aiea of expenses each yeai.
Foi example, the suivey alieauy collects uata on non-union laboi costs anu the value
of apaitments pioviueu to builuing supeiintenuents eveiy yeai. So, foi instance, in
the yeai focusing on "Laboi" costs, it coulu also collect expense infoimation on
union laboi costs anu on benefits.
In the "Seivices" yeai, it coulu collect costs foi painting contiactois anu
maintenance anu iepaii seivices.
This appioach woulu pioviue new uata foi upuating item weights eveiy S-6 yeais
without gieatly incieasing the uata iepoiting buiuen foi owneis.
!"#$ &'#()*)(+"),-.
RuB staff has mouifieu item specifications in the past, paiticulaily when ceitain
items become unavailable. This iequiies iuentifying a new item, collecting piice uata
foi both the cuiient yeai anu the pievious yeai, anu then using the new item going
foiwaiu.
Bowevei, changing the style anu size, foi example, of a piiceu iefiigeiatoi is
somewhat uiffeient fiom saying "we will no longei piice office supplies, we will
piice laptops insteau".
The main oppoitunity foi mouifying the items woulu come in the annual suiveys to
collect costs foi the item weights. The I&E foims incluue a listing of typical costs to
be incluueu in each component. The RuB staff can collect uata on costs of these
types in the annual suiveys anu iuentify new item specifications wheie necessaiy.
0lu items which no longei iepiesent significant costs can be ietiieu.
/)$)"+"),-.
Aftei all is saiu anu uone, the PI0C still measuies piices, not costs. It can be expecteu
to slightly oveiestimate changes in costs. Bowevei, once the PI0C anu I&E aie
woiking with similai components anu the PI0C weights aie baseu on the I&E,
compaiisons can be uone. Foi example, the 2u1S PI0C inciease coulu be compaieu
to the I&E uata foi 2u1S ieleaseu in miu-2u14, the 2u14 PI0C to I&E uata ieleaseu
in miu-2u1S, anu so foith. This will pioviue a check on how much the PI0C
estimates uiffei fiom actual expenuituie shifts.
This analysis has lookeu at the oveiall PI0C foi Rent Stabilizeu Apaitments. The
auuitional apaitment inuexes piesent theii own challenges:
Costs foi Pie-47 anu Post-46 builuings aie iepoiteu in the I&E, so this
appioach can be useu to calculate them.
Costs foi heating builuings with 0il anu natuial uas weie incluueu in a iecent
annual suivey, so those weights can be calculateu.
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12
Nastei-meteieu builuings with stabilizeu units aie veiy iaie anu theie aie no
useful uata foi calculating weights; it woulu piobably be best to simply ietiie
that calculation anu use the oveiall Apaitments Inuex.
Foi Botel-stabilizeu anu Loft builuings, theie is no useful uata in the I&E stuuy that
uesciibes theii patteins of expenuituies. The best appioach is piobably to continue
with the cuiient methous, peihaps conveiting to the I&E components to make the
uata compaiable.
If the RuB ueciues to conveit to this new appioach in 2u14, oi to iun the olu anu
new methous in paiallel, that will involve a significant inciease in woikloau foi 1-S
yeais. Aftei that point, it woulu be ieasonable to uo new expenuituie suiveys foi
hotels anu lofts to impiove theii weights; the populations of those builuings aie
faiily small so the suiveys woulu not be too buiuensome.
Note that, if the RuB implements the new appioach, it will be haiu to compaie
histoiical uata, especially foi the categoiies being ieviseu. Taxes, Fuel, 0tilities,
Laboi, anu Insuiance shoulu be compaiable. The otheis will be moie challenging.
!"#$%&'("#'
The I&E uata pioviues a supeiioi histoiical estimate of changes in 0&N costs foi all
stabilizeu units than the PI0C uoes. The PI0C has become incieasingly inaccuiate,
uiveiging fiom the I&E moie anu moie as time goes on. Theie is some eviuence that
a majoi cause is veiy olu baseline uata on expenuituies. The PI0C is also a piice
inuex anu actual expenuituies shoulu iise somewhat slowei than piices.
Bowevei, the I&E uata cannot be useu foi cuiient estimates since it lags the PI0C by
about a yeai. The PI0C piice anu cost incieases shoulu pioviue bettei infoimation
about iecent changes.
The appioach pioposeu heie is to:
0se the most iecent I&E to cieate the component weights foi each yeai's
PI0C. This will connect the PI0C much moie closely to what owneis have
actually been buying so that we can bettei estimate the oveiall effect of piice
changes.
Annually suivey owneis about theii costs foi vaiious items within a single
component, to upuate the item weights anu allow uevelopment of impioveu
items anu specifications. Since this is not necessaiy foi taxes anu insuiance
(which have one item each in theii components), it shoulu allow upuates of
items weights acioss the PI0C eveiy S-6 yeais.
If possible, suivey hotel-stabilizeu anu stabilizeu loft builuings eveiy S-1u
yeais to upuate the expenuituie weights foi those inuexes.
These steps shoulu give us a stable, iepiouucible PI0C which will stay cuiient anu
tiack bettei against actual expenuituies.

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*+,+ -(#% &$ ,.# !$+/0(&(


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IE study
Data from
Tax Labor Fuel Utilities Admin. Ins. Maint. Misc. Total
1993 1991 $90 $52 $41 $38 $43 $21 $70 $27 $382
1994 1992 $95 $55 $41 $40 $45 $21 $72 $27 $395
1995 1993 $97 $58 $41 $42 $46 $21 $74 $28 $409
1996 1994 $98 $58 $40 $42 $47 $22 $77 $28 $415
1997 1995 $99 $61 $38 $43 $50 $24 $78 $29 $425
1998 1996 $101 $64 $45 $44 $52 $24 $81 $30 $444
1999 1997 $107 $64 $43 $47 $55 $23 $84 $31 $458
2000 1998 $105 $66 $35 $46 $60 $22 $92 $33 $459
2001 1999 $104 $65 $35 $48 $61 $21 $95 $35 $464
2002 2000 $108 $68 $53 $53 $62 $22 $100 $38 $503
2003 2001 $114 $70 $54 $55 $66 $24 $104 $43 $531
2004 2002 $133 $72 $46 $53 $72 $33 $110 $51 $570
2006 2004 $167 $75 $65 $59 $76 $44 $113 $55 $654
2007 2005 $159 $81 $83 $63 $75 $42 $111 $64 $679
2008 2006 $165 $80 $84 $64 $78 $42 $114 $67 $695
2009 2007 $178 $85 $97 $72 $81 $43 $118 $64 $738
2010 2008 $191 $88 $115 $79 $88 $40 $118 $70 $790
2011 2009 $200 $89 $92 $81 $92 $38 $117 $71 $781
2012 2010 $212 $90 $96 $87 $91 $36 $118 $59 $790
2013 2011 $215 $93 $113 $92 $132 $37 $104 $27 $812
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!""#$%&' ) * +,-. !$$/01 +#23#$4 ,$32#05#5
PIOC Changes Taxes Labor Fuel Utilities Contractor Admin. Ins. Parts Replace. Overall
1992 11.04% 5.25% -10.92% 6.61% 2.40% 2.83% 2.34% 2.48% 3.79% 3.98%
1993 3.11% 5.63% 5.18% 12.75% 2.51% 3.80% -0.47% 1.03% 4.15% 4.72%
1994 2.26% 4.28% -0.50% 2.07% 0.87% 3.66% 0.76% 0.99% 1.56% 2.04%
1995 1.37% 4.10% -12.66% -4.00% 2.38% 3.79% 5.18% -0.45% 0.21% 0.14%
1996 2.96% 3.15% 29.60% 7.79% 1.79% 3.46% 5.01% 0.84% 0.97% 5.95%
1997 2.40% 2.26% 0.41% 2.93% 3.38% 3.89% 1.87% 1.45% 1.00% 2.43%
1998 1.23% 2.69% -15.02% 2.34% 2.67% 3.29% -1.52% 1.93% 0.64% 0.13%
1999 0.37% 3.40% -18.37% -0.43% 3.50% 2.87% 3.46% 2.17% 1.67% 0.03%
2000 5.18% 2.62% 54.79% 5.68% 4.58% 3.96% 0.66% 1.93% 0.77% 7.82%
2001 5.45% 3.95% 33.33% 14.95% 3.63% 4.06% 4.86% 0.81% 0.97% 8.73%
2002 6.63% 4.03% -36.09% -9.94% 3.85% 4.64% 16.50% 0.94% -0.60% -1.61%
2003 14.80% 3.45% 66.91% 21.71% 4.81% 5.40% 40.46% 0.41% 1.41% 16.90%
2004 16.20% 4.50% -2.80% 0.80% 4.10% 4.00% 14.70% 1.20% 1.00% 6.90%
2005 1.20% 3.50% 20.00% 8.40% 4.50% 4.00% 8.90% 2.60% 3.10% 5.84%
2006 7.80% 2.50% 22.80% 7.90% 5.90% 6.50% 2.50% 5.50% 4.50% 7.80%
2007 5.79% 8.09% 0.46% 6.29% 5.59% 6.93% 1.88% 3.03% 1.60% 5.14%
2008 0.32% 3.98% 37.35% 8.89% 4.62% 5.26% 2.33% 2.28% 3.99% 7.78%
2009 11.72% 2.88% -10.12% 10.91% 2.77% 4.05% -2.90% 2.65% 6.07% 3.96%
2010 10.12% 3.13% 0.46% -1.68% 2.32% 4.11% -2.02% 1.72% 0.93% 3.43%
2011 3.51% 2.66% 23.06% 7.66% 2.65% 2.88% -0.36% 3.69% 0.64% 6.13%
2012 7.47% 2.49% 1.63% -4.01% 3.25% 2.58% 2.51% 3.70% 3.25% 2.77%
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I&E Component Intercept Std Err Growth Rate Std Err R2 degrees of freedom
Taxes 82.0 0.034 1.048 0.003 0.94 18
Labor 53.7 0.008 1.028 0.001 0.99 18
Fuel 31.9 0.077 1.062 0.007 0.82 18
Utilities 36.2 0.022 1.044 0.002 0.96 18
Admin 42.0 0.029 1.046 0.002 0.95 18
Insurance 19.2 0.065 1.042 0.006 0.75 18
Maintenance 73.0 0029 1.028 0.002 0.87 18
Other 26.2 0.106 1.046 0.009 0.58 18
Overall 363.2 0.018 1.043 0.002 0.98 18


PIOC Taxes 0.875 0.034 1.058 0.003 0.95 19
Labor 1.009 0.007 1.037 0.001 1.00 19
Fuel 0.767 0.086 1.084 0.007 0.86 19
Utilities 0.960 0.028 1.052 0.002 0.96 19
Contractor 0.945 0.012 1.038 0.001 0.99 19
Administrative 0.971 0.009 1.043 0.001 0.99 19
Insurance 0.869 0.063 1.065 0.005 0.88 19
Parts 0.957 0.012 1.019 0.001 0.95 19
Replacement 0.987 0.014 1.017 0.001 0.92 19
Overall 0.912 0.026 1.052 0.002 0.97 19
!"#$%&'() +,- ./0! %(1 +,- 234 /(5"#- %(1 67$-(8- 9+:1; < =>?@>@A

18

The iegiessions fit a constant giowth iate to the actual costs oi PI0C peicent incieases. They take the time seiies uata anu see what
constant giowth iate pioviues the best fit to the uata.
The key paiameteis heie aie the estimateu giowth iates. Foi example, consiuei the fiist line. The value of 1.u48 means that the
iegiession mouel estimates that opeiating costs foi Taxes fiom the I&E stuuy will giow by about 4.8% pei yeai. The stanuaiu eiioi
is u.S%, so the expectation is that, 9S% of the time, the tiue value woulu be between 4.2% anu S.4%, 9S%. While this uepenus on
vaiious statistical assumptions, it pioviues some guiuance foi how well the mouel fits the uata.
The R2 (i-squaieu) values aie anothei inuicatoi of the fit. In that same line, the R2 of u.94 means that the mouel explains about
94% of the vaiiance in the uata. Anu the uegiees of fieeuom measuie how much of the uata the mouel tiies to explain - in this case,
we have 19 oi 2u uata points anu aie estimating 2 paiameteis, so we have 17 oi 18 uegiees of fieeuom left.
The inteicepts foi the I&E aie the mouel's estimate of the costs in uollais pei unit pei month in the fiist yeai of the analysis, 1991.
The PI0C inteicepts have no actual meaning but impiove the statistical piopeities of the mouel.

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I&E Component
PIOC Item
PIOC Item Description
Taxes 101 Taxes Fees and Permits

Advertising 604 Newspaper Ads

Cleaning Contracts 803 Wet Mop
804 Floor Wax
806 Pushbroom
807 Detergent
808 Bucket
809 Washers
811 Pine Disinfectant
812 Window/Glass Cleaner

Fuel 301 Fuel Oil #2
302 Fuel Oil #4
303 Fuel Oil #6
405 Gas #2, 65,000 therms
406 Gas #3, 214,000 therms
407 Steam #1, 1.2m lbs
408 Steam #2, 2.6m lbs

Insurance 701 Insurance

Interior Painting and
Decorating 501 Repainting
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805 Paint

Leasing Commissions 606 Lease Forms
605 Agency Fees

Light and Power 401 Electricity #1, 2,500 KWH
402 Electricity #2, 15,000 KWH
403 Electricity #3, 82,000 KWH
404 Gas #1, 12,000 therms

Management and
Administration 601 Management Fees
602 Accountant Fees
603 Attorney Fees
607 Bill Envelopes
608 Ledger Paper
409 Telephone

Repairs and Maintenance 502 Plumbing, Faucet
503 Plumbing, Stoppage
504 Elevator #1, 6 fl., 1 e.
505 Elevator #2, 13 fl., 2 e.
506 Elevator #3, 19 fl., 3 e.
507 Burner Repair
508 Boiler Repair, Tube
509 Boiler Repair, Weld
510 Refrigerator Repair
511 Range Repair
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512 Roof Repair
513 Air Conditioner Repair
514 Floor Maint. #1, Studio
515 Floor Maint. #2, 1 Br.
516 Floor Maint. #3, 2 Br.
813 Switch Plate
814 Duplex Receptacle
815 Toilet Seat
816 Deck Faucet

Wages and Payroll 201 Payroll, Bronx, All (Union)
202 Payroll, Other, Union, Supts.
203 Payroll, Other, Union, Other
204 Payroll, Other, Non-Union, All
205 Social Security Insurance
206 Unemployment Insurance
207 Private Health & Welfare

Water and Sewer 410 Water & Sewer

Ineligible 901 Refrigerator #1
902 Refrigerator #2
903 Air Conditioner #1
904 Air Conditioner #2
905 Floor Runner
906 Dishwasher
907 Range #1
908 Range #2