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Dear Library Champion,
Reserve funds are a common practice in non-profit organizations. There are two types of reserve funds – restricted and non-restricted. Restricted reserve funds are usually created by a board resolution to move undesignated surplus funds into accounts intended for asset replacement or special projects. Technology upgrades is an example of a restricted reserve fund. The purpose of unrestricted reserve funds is to allow the organization unrestricted access to liquid assets available to cover unanticipated expenditures. However, unrestricted reserve funds should be used to address temporary situations not continuous income shortfalls. If libraries plan on budgeting for reserve funds, there should be a budget line in expenditures that designates funds for reserve purposes, and revenues and expenditures should balance.
Library boards should consider developing reserve fund policies in collaboration with their municipal partners. With respect of regional public libraries, reserves policies, fund uses, and access protocols could be a component of the regional library agreement. All municipal partners agree to the terms that surplus funds can be held by the board, and when and how these funds may be expended. In terms of municipal libraries, the library board and the municipality could pass a resolution regarding reserve funds. Sources suggest an unrestricted reserve fund should have enough money to cover one full pay period with a maximum of no more than two years worth of expenditures.
A written reserve policy will indicate the purpose, goals, and method of maintaining and using of the reserve funds. It is recommended that reserve policies cover five areas:
- “Purpose of building and maintaining reserves
- Defining the type of reserves, intended use, and calculation of target amounts of each fund
- Assignment of authority for making use of each type of reserve fund
- Responsibilities for reporting reserve fund amounts and use of reserve fund by delegated staff
- Specific policies, if needed, about investment of reserve funds”.
Clear reserve policies agreed upon by all parties enhances the strategic goals and plans of library service for the benefit of the community.
Resources
Operating Reserves with Nonprofit Policy Examples
Library Operating Reserve Policy
Establishing a Toronto Public Library Reserve
Vancouver Public Library Financial Reserves Policy
Library Stabilization Reserve Fund, City of Saskatoon Policy
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