A Reserve Fund is a separate account established by a school district to finance various district costs. It can be thought of as a saving account for a specific purpose (see Appeal of Kachmeister, 40 Ed. Dept. Rep. 577 (2001). Generally, school district reserve funds are authorized pursuant to either the Education Law or the General Municipal Law.
Reserve funds, like other savings plans, are mechanisms for accumulating cash for future capital outlays and other allowable purposes. The practice of pre-planning and systematically saving for capital acquisitions and other contingencies is considered prudent management. Savings for future capital needs can reduce or eliminate interest and other costs associated with debt issuances.
Reserves are established to provide resources for an intended future use with a clear plan in mind regarding the future purpose, use, and, when appropriate, replenishment of funds from the reserve. Reserve funds should not be merely a “parking lot” for excess cash or fund balance. We should balance desirability of accumulating reserves for future needs with the obligation to make sure taxpayers are not over-burdened by these practices. There should be a clear purpose or intent for reserve funds that aligns with statutory authorizations.
Planning today and saving incrementally for expected future events can help mitigate the financial impact of major, nonrecurring or unforeseen expenditures in annual operating budgets. Establishing and funding allowable reserve funds for a clear purpose can help smooth out spikes in the annual budget and in the real property tax levy.
Source: Office of the New York State Comptroller – Local Management Guide for Reserves