How Does Your City’s Reserve Funds Stack Up

Reserve funds represent the accumulation of operating surpluses a city has been able to leave untouched and available for future use. They can stabilize cash flow during the first few months of a fiscal year before receiving property tax payments, provide cushions for unexpected expenditures or unforeseen dips in revenue, or apply them to any other uses that state or local rules don’t forbid. A good governance rule of thumb suggests a responsible and reasonable ending balance target would be somewhere between 15 and 30 percent of annual General Fund Expenditures.

The average for all 940 cities came to 125 percent, well above the target, meaning many cities may be holding on to more reserve funds than necessary.