American Institute of Certified Planners (AICP) Practice Exam

What advantage do governments gain from establishing Reserve Funds?

1. Immediate access to new technologies

2. Ability to finance future capital improvements

3. Reduction in the amount of tax revenue needed

4. Increased public participation in budgeting

The correct answer is: Ability to finance future capital improvements

Establishing Reserve Funds provides governments with the advantage of being able to finance future capital improvements. These funds allow for the proactive setting aside of resources that can be utilized to address infrastructure needs or large-scale projects without having to rely on immediate revenue generation or increased borrowing at the time of the expenditure. By planning ahead and accumulating funds over time, governments can manage their financial responsibilities more effectively, ensuring that they have the necessary capital available when needed. This proactive financial strategy means that governments can avoid disruptive funding shortfalls, reduce the impact of cyclical revenue variations, and maintain a more stable financial environment for planning and executing public works. Reserve Funds also enable governments to undertake larger projects in a more organized way, rather than being hampered by budget constraints at the moment of need, which often results in rushed decisions that may be less effective in meeting long-term community goals.