Capital Reserve Fund – Frequently Asked Questions

What is a capital reserve fund?

A capital reserve fund allows the district to set aside money for future construction projects and major purchases, much like a savings account. The fund cannot be established without voter approval AND reserve funds cannot be spent without voter approval.

Where does the money for the capital reserve fund come from?

Money would only be added to the capital reserve fund if there is a surplus at the end of the year. In such cases, the board may authorize the funding of the reserve with some or all of the surplus, with the total not to exceed $40 million over 15 years. If there is no surplus, no money can be added to the reserve.

Will my taxes go up due to the establishment of a capital reserve fund?

No. Taxes would not increase due to the capital reserve fund.

Why establish a capital reserve fund now?

Capital assets have a useful life and will need replacement in the future. When that time comes, a reserve reduces the need to borrow, yet still maximizes state aid.

What kinds of projects can the money be used for?

The capital reserve fund can only be used with voter approval, so any proposed project using the fund would have to be presented to and decided upon by the community. Major building projects or purchases (e.g., a new boiler, if one were needed) could be funded using a capital reserve.

Why does the district need a capital reserve fund to set aside money?

The Government Finance Officers Association recommends that governmental bodies maintain an unreserved fund balance of 5 to 15 percent of the general fund. However, state rules prohibit school districts from keeping more than 4 percent of a district’s budget in an undesignated reserve account. Capital reserve funds are exempt from that limitation, allowing schools to save for major expenses, both planned and unplanned.