Saturday, June 18, 2011

Emergency Funds

Picture of a Spokane Transit Authority bus.Image via Wikipedia
The last few years have been pretty tough for transit agencies around the nation. Because of the extended recession many transit agencies have had to cut service and raise fares.

This can be especially hard for the transit dependent and low income folks, but the fact of the matter is, any organization has a budget it has to work with. You can complain all you want about salaries, where capital is being spent, or whatever other whipping post people like to complain about.

IF we lived in a perfect world, transit systems would be able to use their emergency funds to cover operations during a recessionary period. Some of you may be asking what exactly is an emergency fund: it is exactly what it sounds like, a fund to protect against emergencies. Smart financial planners tell not only individuals but also businesses to have three to preferably six months of expenses set aside for emergencies such as recessions, lay offs, etc.

Of course only a small percentage of the population actually keeps an emergency fund. Maybe that's what so many are bitterly opposed to government agencies of any kind to have emergency funds. In Oregon, instead of saving money for slow periods, the money goes back to the taxpayers. Some lawmakers this year tried to promote the idea of keeping some of that money for emergencies but most would not go for it probably considering it political suicide in today's environment.

A perfect example of a agency that was attacked severely for building up an emergency fund was the Spokane Transit Authority. Because of efficient operations the agency started to build up a nest egg but came under fierce attack.

It should be pointed out that some transit agencies did not help their own cause but being overly optimistic when it came to financial projections. One agency required 6% annual economic growth to maintain their existing services. Depending on overly optimistic economic projects was a one way trip to disaster.

Hopefully we will learn a couple of things from this recession. First, revenue projects need to be realistic and a agency cannot depend on continually economic growth to keep existing services running as is. Second, that emergency funds is something that not only individuals need but it also makes since for businesses and government agencies to be prepared for raining days. 
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