Business Columns & Blogs

Saving up for those rainy days

This might be an inopportune time to bring it up, but shouldn’t you be putting a little more money aside for a rainy day?

“Inopportune,” as in, “Are you kidding? What money? My job got shipped to China, or Iowa, or it just evaporated. What money I do have is being drained by higher bills. Have you seen the price of gasoline lately? And all this talk of green energy means I’m paying more green paper to the utilities.

“As for rainy days – Noah endured a brief shower by comparison.”

Well, umm, yes, as a matter of fact we’re not kidding.

Neither, in fact, were the members of the Higher Education Funding Task Force, which last week issued its report on how to improve funding of higher education in Washington.

One of the task force’s recommendations was to establish a $1 billion endowment, funded with donations from individuals and businesses, to support scholarships to the state’s public colleges for Washington students.

Task forces, blue ribbon panels and their ilk have a long, unhappy history in this state of writing reports that say nothing, or are ignored before the ink is dry, or both. Thus this particular task force deserves credit not just for coming up with a very specific idea, but for drawing attention to a hugely powerful but woefully underused economic tool – the endowment fund.

Endowment funds are virtually biblical in their origins – what was Joseph’s counsel to the pharaoh of Egypt to store up grain during seven years of plenty to feed the country during seven years of famine but a plan for establishing an endowment?

In this country they’ve been used to great effect by colleges and universities, to provide sources of income for teaching positions, scholarships, program support and building construction.

But their application is much broader than higher ed – arts groups, civic, philanthropic and charitable organizations, community foundations, all have used endowments to not just supplement the income they receive from donations but to provide a more reliable, larger base to support whatever those organizations do. Endowments give them not just more money and strength to endure rough patches but more security, flexibility and control over their destinies.

Not that endowments are cure-alls or will cushion the full blow of a recession. Endowments have been invested in the same market that gave your IRA and 401(k) a haircut; organizations that during the good times got too dependent on income generated by endowments, or worse yet tapped the capital, found themselves just as squeezed by the downturn as those without such reserves.

Nor are endowments particularly enticing to set up and run when times are good – especially for government. It’s a lot more fun and politically rewarding to spend all the money you’ve got (or, if you’re the federal government, more) now. Some people will argue, not without justification, that if the government has some surplus to set aside it ought to return it to the taxpayers.

But there are some examples of endowment funds working in a government setting. One is the Alaska Permanent Fund, a $38.6 billion fund originally set up as a long-term repository for tax revenue generated by oil and gas production.

The best known feature of the fund is the dividend check sent every year to permanent residents of the state.

The other, much closer to home, is Washington’s Budget Stabilization Account, better known as the rainy-day fund. The 2007 ballot measure that set up the fund required the Legislature to set aside 1 percent of the general fund per biennium; it also set restrictions on when it could be tapped, such as when job growth falls below 1 percent, or the governor declares an emergency following a catastrophic event, or the Legislature approves doing so by a 60 percent vote in both houses.

According to the state treasurer’s office, the fund got as high as $421 million in 2009, but a series of withdrawals since then have essentially emptied it.

Did the rainy day fund patch holes in the budget that ran to billions of dollars? Obviously not, since the state has even more cutting to do. Did it at least dab at the hemorrhaging of red ink?

Yes – which is why rebuilding the fund should be a priority if or when the recovery arrives.

Putting money into reserve accounts should be a priority for people, government and organizations when the economy improves. If those reserve accounts don’t exist, establishing them should be a priority.

As tempting as it will be to spend every cent of money coming in at the first hint of sunshine, building rainy-day accounts will provide some protection should the next shower proves, like this one, to be a destructive hailstorm. And there will be a next one.

Or hadn’t you heard that it rains a lot around here?

Bill Virgin’s column on business and economics appears Sunday in The News Tribune. He is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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