Use City's Reserves to Generate New Revenues

How much difference is there in running a local government versus operating a not-for-profit fine arts organization?

The  headline in a recent article from the Chicago Tribune caught my eye. It read "Strong Cash Reserves, Vigorous Fundraising, Keep Wolf from Lyric Opera's Doors."

Note that Lyric's reserves represent only 8 percent of its operating expenses, whereas, I seem to recall the Highland Park City's

Nancy Rotering, Highland Park's ran on a platform of fiscal responsibility, where the city's reserves should not be used to offset revenue losses. .

If a not-for-profit organization like Lyric can use its reserves and raise more money in tough economic times, what's wrong with Highland Park's position? Lyric's board is made up of some of Chicago's top business leaders. They certainly understand the economy and what it takes to successfully run an operation over an extended period of time. In our city's situation, the revenue increases can come from taxes obtained through attracting new businesses and the resulting new jobs based on the city's agressive business development efforts.

As a business consultant, I've seen too many operations fail when management tries cutting expenses continually and does little to increase revenues. That's not the way to do it. The Lyric Board recognizes that increasing revenues while maintaining expenses is key to running a viable operation.

Highland Park's new mayor and City Council members need to recognize this fundemental prinicple and take appropriate action.

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Daniel May 31, 2011 at 04:56 PM
Its an absurd comparison, a City with the Lyric Opera. Take a look at the State of Illinois and the Federal governemnt. Both tried to spend their way out of financial problems. how is that working?
Larry Hillman June 07, 2011 at 02:19 PM
I believe the bond credit rating agencies (Moody's, S&P, Fitch, etc) set the reserve guidelines and its my understanding they looked for reserves amounting to about 1/3 of the operating expenses to secure the top credit rating that Highland Park enjoys. Having lower reserves and ratings would increase Highland Park's borrowing costs. As Daniel suggested, comparing Highand Park to the Lyric Opera is a real stretch.
Lane Young June 08, 2011 at 03:33 AM
The bond agencies are the driving force behind having a healthy reserve fund. However at the moment our budget could see us having reserves of 40% of the annual budget. If we were to go down to 25% we would be in no jeopardy of losing our Aaa rating. Communities have even been able to keep Aaa below that after making a large 1 time expenditure with a clear plan to replenish up to the Bond agencies guidelines, though this would have to be done very thoughtfully.


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