Reserve Fund


A reserve fund is an account established by an entity in which liquid assets are deposited and may be withdrawn for a particular purpose when certain circumstances are fulfilled. When used in the budget process, even that very broad definition does not suffice to explain everything termed a “reserve fund”. Even so, the term “reserve fund” generally fall into two categories — the first being a fund set up for use by the agencies of the Executive Branch, and the second being those use in the Congressional budget process, and in particular found in concurrent resolutions on the budget.

Executive Branch Reserve Funds

The variety of “funds” bearing the additional term “reserve” is so broad the only real way of determining an individual fund’s method of operation is to examine the text establishing it. They take various incarnations, but certain general types of funds have been established:

Funds that are simply accounts used for particular contingencies may be termed “reserves” such as the FLAME Wildfire Suppression Reserve Fund. These types have an authorized purpose, but may only spend  amounts Congress appropriates to it. In the case of the FLAME reserve fund,  appropriated amounts are available to be transferred to the main fire fighting account for the most severe, complex, and threatening fires and thus it serves as a contingency fund.

Other reserve funds may have a dedicated stream of receipts and permanent authority to obligate those amounts may be provided by Congress. The Securities and Exchange Commission Reserve Fund operates in this way. The authorizing language of subsection (i) of 15 U.S.C. 78d includes the receipts collected under paragraph (2) (“reserve fund amounts”), and the authority to spend them in paragraph (3) (“Use of amounts in reserve fund”). In this sense, they operate as a form of “revolving fundin that no further action by Congress is required for the funds to be obligated. 

Reserve Funds in Budget Resolutions

A reserve fund in the Congressional budget process are most often seen in concurrent resolutions on the budget, and are one of the few, even though limited, method by which policy can be influenced. Budget resolutions in general are simply a set of numbers with underlying policy assumptions indicating outlays and revenue levels, but they do not make specific policy changes. As for the numbers, the important levels such as the aggregates and allocations are enforceable through points of order against noncompliant legislation, but the policies themselves are irrelevant to the violation (unless it comes to ignoring the point of order – the more popular a program, the easier it is to violate the budget). 

Reserve funds, though, can streamline the parliamentary hurdles legislation might otherwise face.  They allow the spending and revenue levels included in the budget to be revised for the purposes of policy-specific legislation. If a bill meets a policy goal of the budget, the reserve fund will make it easier for Congress to pass it.

Two components give structure to a reserve fund: A policy purpose and an amount over time that may be spent. The first of these may be very specific, as in anything with a particular designation – such as a particular bill with the right short title. A set of criteria may be listed such that they must all be met to comply. The reserve fund policy also may be somewhat vaguely defined  such as section 5401 of H. Con. Res. 71 (115th Congress) where it would be triggered for legislation “that invests in national infrastructure”. 

The other aspect is the level by which the budget resolution may be changed to reflect the changes to be made by the policy. Most reserve funds constitute an increase in spending and therefore allow an increase in the allocation of the committee of jurisdiction and the aggregate spending levels of the budget resolution. Very often though, in order to avoid unforeseen scoring issues should an effect on revenue occur, they may be phrased using the term “deficit” to capture any these effects. In other cases, the primary purpose of the reserve fund may be for a particular kind of tax credit, in which a revenue loss would be the primary budget effect. Again, the term “deficit” may be employed since some tax credits are “refundable” and therefore constitute a tax expenditure, which are defined as “outlays” and hence spending.


Periodic Counsel Advisory: The Deficit-Neutral Reserve Fund:  What is it? How Does It Work? Do I Really Care? (PCA) January 2015




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