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NYS Comptroller


The Academy for New York State's Local Officials

Capital Planning and Budgeting: A Tutorial for Local Government Officials

Module 2 - The Capital Budget

Financing: More Local Sources

Fund balances

The portion of the fund balance that is allowed to be used for capital financing is the unreserved fund balance. Economic conditions and prospects need to be considered when deciding on whether to use fund balances to partially or fully fund a capital project or acquisition.

A local government needs to maintain a reasonable fund balance as insurance against unanticipated expenditures or revenue shortfalls, but for classes of government other than school districts, there is no set percentage. Guidance for determining a reasonable fund balance can be found in OSC's Accounting Release on Budgeting and Fund Balance Legislation. School districts unreserved, unappropriated fund balance cannot exceed 4% of the ensuing year's appropriations.

The danger in relying on fund balances for capital financing is that they may decrease or become unavailable in future budgets; therefore it is important to have reasonable projections and to have other financing options available.

Reserve funds

To ensure that the moneys are available when needed for capital purposes, local officials should consider establishing reserve funds, although there is no requirement that reserve funds be set up. Through formal resolution, the governing board can establish reserve funds earmarking resources for the future acquisition of essential capital assets. For example, these reserve funds may be funded from available fund balance, appropriations or proceeds from the sale of assets. Our Local Government Management Guide on Reserve Funds [pdf] provides guidance on the establishment of capital and other reserve funds. The use of such reserve funds would then be listed as a funding source, where applicable, in a multiyear capital plan.

Sales of assets and trade-ins

Although sales of assets and trade-ins will not fully fund a capital project or acquisition, there may be instances where they can be a source of partial funding. Local government officials must be sure to adjust existing property and inventory records to reflect the disposition of these items.

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