A fix for Eastgate

Regardless of how the intramural County fight over near-term Metro cuts resolves itself, it is exceedingly likely that Metro will operate over the next few years with some kind of reserve. According to County spokesman Jeff Switzer, this money is “invested in the King County Investment Pool with all county funds.”

That’s completely reasonable, but let’s hope that Metro’s staff takes some time to identify a slightly more exotic investment. Numerous capital projects can improve bus speed and reliability, shaving a minute here or there from each trip. Metro doesn’t pay for buses by the minute, but enough savings along the course of a route can reduce the number of buses needed to maintain a service level.

These projects are traditionally the domain of cities, but given Seattle’s lunge into buying service, that distinction is breaking down. Moreover, as Metro is the institutional beneficiary of these improvements, it is the one with the proper incentives to invest accordingly.

An example that comes to mind is redoing the connection between Bellevue College and Eastgate, which a few years ago I estimated as a 30% return on investment per year, forever. That back-of-the-envelope guess that could really use refinement by qualified staff. A similarly thorough review of all planned projects ought to identify those where the return in operating savings exceeds the likely return from more traditional investments. As a bonus, these returns come from time savings that also benefit riders directly.

The reduced costs shield Metro from recession in the same way that cash in an account does. And although I’m not wild about the tendency to cut capital projects when times are tough, it is nevertheless true that it is much easier to scale back promised future improvements during budget crises than to remove service that people already use and depend on, making capital funds politically more flexible than operating money.

16 Replies to “Exotic Ways to Invest Reserves”

  1. Martin, a great point, even if it is rhetorical – hard to imagine such a thing not running afoul of county financial policies (perhaps for good reason – reserves ought to be pretty liquid).
    You’re pointing out an issue that goes well beyond use of reserves: if there are capital improvements with such obvious wins in operational expense reduction (measured by payback period or IRR or whatever), why are they not being pursued? Many ways to pay for them – not only creative views of reserve policy, but also:
    – Prioritizing with other capital projects
    – Financial arrangements with local govts (eg Bellevue) to do the projects and pay them back out of the savings
    – Borrowing (issuing bonds) to be paid back from the operational savings
    All have their issues, but if the wins are so clear, some combination of such approaches should be able to work. So why haven’t they been pursued?

  2. The whole point of cash reserves is to have liquid cash on hand. Not concrete on the ground.

    Projects of any sort carry risk. Do you really think it‘s appropriate to treat a potential cost overrun as equivalent to a cash stockpile? If so, I really hope you’re not an accountant.

    1. What may not be clear to you is that these improvements generate liquid cash, by enabling Metro to take buses off the road without degrading service.

      I agree these projects carry some risk, though the risk of resurfacing a street, for instance, is pretty small. Investments of any sort, however, also carry risk.

      1. It’s perfectly clear to me that spending money now can lead to positive changes to net income and even revenue.

        That is not and never will be the same thing as a cash reserve. Having cash on hand now is a valid goal unto itself. There are legitimate financial investments that can be made with cash that maintain its liquidity (this is why on a Statement of Assets you see “cash and cash equivalents”). A bank account is one such investment.

        The argument you want to make is “we should invest in small-scale capital improvements with positive returns.” That’s fine, but it involves consciously choosing to put less money in cash reserves and more money into projects, not simply calling one thing another and saying “we’re good!” Metro’s accountants would quit before playing such a shell game. And if they found inept enough accountants to replace them, the county’s auditors would have a very simple fraud case before them.

      2. “There are legitimate financial investments that can be made with cash that maintain its liquidity”

        If it isn’t in green Federal Reserve notes, it isn’t guaranteed to be liquid when you need it. If it’s FDIC-insured, you’ll probably only have to wait a couple of days. If it’s not, *it has risk* and may disappear entirely due to (for example) banking fraud.

      3. Kyle, if you’re making a narrow point about accounting rules, I’m happy to concede it. If King County makes its precisely defined “reserves” smaller but is actually using the money to fund capital improvements with a positive financial return, I think that’s great. In fact, that’s what I’m advocating.

      4. Okay, Martin. That’s good. But by doing the right thing and calling a spade a spade, you then have to engage Dembowski and Desmond on the existing cash reserves debate.

  3. This does look like a great project. Just as the SDOT see value in transit reliability and functionality and invests engineering and construction $$ to fund Seattle projects that benefit transiert rider, so should the City of Bellevue have this high benefit transportation improvements be part of their transportation budget not just fund improvements for cars, pedestrians and bikes. If they want to be a “big city” then fund urban transit infrastructure.

  4. So the answer is no, not the reserve fund, but it raises an equally important question, “What fund then?” Prop 1 established a matching fund for suburbs to partner with Seattle on shared routes. ST has a matching fund for part of the Northgate pedestrian bridge, which is in danger of expiring if Seattle doesn’t come up with the rest of the money. If the state is not moving on an infrastructure bank, maybe the county can do something similar by seeding a small-capital fund for Metro. Then Metro could make a list of shovel-ready small projects that would speed up service, and after it’s built contribute any money actually saved back to the fund for the first 10 years (because the savings would not exist without that project, and Metro is also benefitting from faster and more frequent service). That would at least be a step toward a self-sustaining source for capital improvements, withour raiding Metro’s emergency fund.

  5. One big question mark I see in your proposed routing for the 245 is what looks like nothing more than an out-and-back detour just to serve the bus bays of the transit center.

    Instead of making the 245 waste time to detour in and out of bus bays (which, by and large, provide connections to exactly the same routes that already share other nearby stops with the 245), we should focus our energies on something that builds real connections – adding a local bus stop on the 142nd St. overpass next to the freeway station. Why they built it without a wide enough sidewalk to accommodate such a stop is beyond me, but it sounds like something that should be fixable with nothing more than a bit of money.

    1. If you click on the picture or squint, you can see that detour down 32nd is part of the “Existing and Metro Proposed 245”, i.e. its existing routing. I agree there should be a new stop on the overpass, though I definitely wouldn’t delay this project for it since the existing stop next to the parking garage is actually closer to the freeway stop than the bus bays are.

      1. Why can’t the buses simply stop in-lane farside the light up on the bridge? They stop in-lane now at the existing stops just south of SE 32nd Street.

        That said, there is a pedestrian access problem this project would create. The “outbound” 271 will have no stops on Eastgate Way, at least not without adding signalized cross-walks. Currently the bus serves the stops on the north side of the street traveling outbound before it visits the TC, but the buses bound for Issaquah won’t make those stops.

      2. William is right; the proposed change would have the 245 not serve the Eastgate bays and instead serve the bridge.

    2. I assumed “proposed” meant “with this project. Now I see, this is what was proposed in the 2011 restructure, which did not include the project.

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