In which situation would interest expense be included as a direct expense of a program?

Interest expense would be included as a direct expense of a program when borrowing is essential to the creation of that program. This inclusion is justified because the funds borrowed directly support the development and implementation of the program. Therefore, the interest incurred on the borrowed funds becomes an integral part of the costs associated with launching and maintaining the program.

In situations where borrowing is necessary to fund a program, the interest expense is directly tied to the operational needs of that program. This represents a fundamental financial obligation that arises from the decision to finance the program through debt. For example, if a municipality borrows money to build a community center, the interest on that loan can be attributed directly to the costs of that specific program, reflecting the true financial impact of the investment.

In contrast, scenarios where interest expense exceeds the budget, is requested by taxpayers, or is deemed unnecessary do not establish a direct connection between the interest incurred and the specific program being funded. In those cases, the expense may be considered a broader financial concern or management issue rather than a direct cost essential for the program’s establishment or operation. Thus, it is the necessity of borrowing for the program's creation that makes including interest expense as a direct expense appropriate.