Local Government Reserve Funds and Fund Balance
Author: Michael Shelton.; Charlie Tyer.
Source: Volume 21, Number 01, Spring 2000 , pp.1-18(18)
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Abstract:
Determining the amount of fund balance that should be retained in a governmental fund is a question of creating an acceptable equilibrium between the varied, and sometimes conflicting, financial objectives a governing body sets for itself. Retaining too small a balance may constrain the jurisdiction’s ability to take advantage of short-run opportunities. Or, it may necessitate borrowing frequently in order to meet routine service demands. It may make it difficult to manage in emergency situations. In contrast, keeping too large a balance may suggest to taxpayers that the government is performing a savings function for the community and that it is maintaining inflated tax and fee rates. This article comprehensively examines basic principles and tools for working capital management and their applications to government finance. In order to negotiate a course successfully in this area of policy, elected officials and managers need to understand some of the basics of working capital management, to choose their financial objectives wisely, and to state those objectives explicitly.Keywords: Cash balances: transaction, compensating, speculative, and precautionary; unreserved balances; undesignated balances; working capital productivity
Affiliations:
1: City of Myrtle Beach, South Carolina; 2: University of South Carolina, Columbia.