What does the term "Reserve" mean in municipal finance?

In municipal finance, the term "Reserve" specifically refers to funds set aside for future expenditures. Reserves are crucial for municipalities as they provide a financial safety net and help ensure that funds are available when needed for anticipated expenses. This can include anything from capital projects, emergency repairs, or other planned future costs that may not be covered in the current budget cycle.

By creating reserves, municipalities can manage cash flow more effectively, mitigate financial risks, and plan for long-term financial stability. This practice reflects sound financial management and helps maintain the municipality’s creditworthiness, ensuring they can meet future obligations without reliance solely on new revenues.

The other options focus on different aspects of municipal finance that don't encapsulate the broader and more preventive nature of reserves, which is specifically about preparation for future expenditures.