Rainy days, hurricanes, and reserve funds

by Andrew Nelson

Here's a question I've been asking myself recently: how much money should be in a "rainy day" (or reserve fund) for a city? In addition to pension reform, pay cuts, hiring freezes, tax hikes, and program cuts, cities have also thinned out their reserve funds in recent years. Then the East Coast gets an earthquake (albeit minor) and a hurricane within a week of one another. How will they pay for repairs?

I've heard some individuals argue that having large rainy day funds is an act of government tyranny - surplus funds should be refunded to citizens. I generally agree. However, I think that cities could benefit from having strong reserve funds which are perhaps larger than one would normally accept. For example, a reserve fund could be legally set at annual growth plus one percent and eliminating the reserve fund's growth during hard economic times. I find it unfortunate that cities have already faced three years of cuts and then get barraged by unconnected acts of God and realize they have no more money.

In years of plenty, what is wrong with having a structural surplus of reserve funds? Do you think it is acceptable for local governments to maintain a large, yet reasonable, rainy day fund, or should the money be refunded to residents?

For more information on how Hurricane Irene has affected local governments, read this story in the New York Times.

Priorities

by Andrew Nelson

“How does a project get to be a year behind schedule? One day at a time.” – Fred Brooks

Let me be clear from the very beginning: I am not saying that a public transit budget is the most important issue facing local governments.

City governments and their transit counterparts face incredible, complex, and usually politically-charged issues when they develop their budgets. It is difficult, if not impossible, to compare the safety, health, and security of a population to their bus system. However, I'd like to make an effort to explain why I think we need to take better care of our public infrastructure on a regular basis.

My parents owned a Volvo when I was growing up. When the time for the 30-, 60-, or 90-thousand mile checkup came around, the car dealer would send a maintenance reminder saying "the cause of major problems is not fixing the minor ones," implying that the only way my parents could avoid paying huge maintenance fees in the long run was to make sure that the oil was checked, the brakes actually stop the car, and the engine worked. Taking care of minor problems before they become major ones is a truism. It applies to car maintenance, your dental care, school, work, and yes, it applies to public transit infrastructure.

Many local governments recognize the importance of filling in potholes, improving rail lines, or upgrading buses on a regular basis. However, public agencies often let their transit infrastructure maintenance slide in exchange for other pressing issues such as police, fire, education, or garbage removal. In fact, one recent study from the American Public Transit Association found that "40% [of transit agencies] are delaying capital improvements". It is easier in the short run to push back these transit improvements for another year, or maybe three, or maybe five. The problem, however, is that in five years you are no longer paying for the improvement you wanted to pay for originally. You are paying for the original problem plus five years of additional wear and tear. If that wasn't enough, you are also paying more dollar for dollar plus the cost of inflation. When comparing all of these minor buildups, you find that not only has the problem become worse, but fixing it now costs an exorbitant amount of money that you don't have.

A recent Wall Street Journal article underlines this problem among public transit agencies. In Boston, for example, "the fleet of 80 aging locomotives [for the T subway system] had, among other woes, trouble starting, keeping auxiliary power functioning for lighting systems and maintaining enough air pressure for braking systems". The transit company hadn't bought new locomotives in 20 years and had skimped on maintenance repairs. Just in order to maintain service, the company had to raise fares and lower service levels. As gas prices rise, the article states, ridership increases because individuals substitute the public transit for driving their cars. Thus, not only are transport vehicles outdated and under-maintained, but more people are riding them!

Benjamin Franklin said, "You may delay, but time will not." A small wins strategy and a wise, long-term capital improvement plan can help cities stay on top of their transit needs while at the same time keeping abreast of the best practices and newest technologies in the sector. Neglecting public transport and transit issues in budgets will ultimately cost more money, time, and frustration for city governments and residents.

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