Spending from Reserves

Training for: Legal Notes

Question: Do the municipal officers (selectmen or councilors) need voter approval in order to spend money from a reserve fund such as a capital equipment account?

Answer: As a rule, no, but there is one exception.

As we’ve noted here before, Maine law authorizes municipalities to establish reserve or non-lapsing funds for a variety of purposes, including capital improvements, capital equipment, credit reserves for financial emergencies, and sinking funds for paying down debt (see “Reserve Funds,” Maine Townsman, Legal Notes, December 2004). These funds are established by the municipal legislative body (town meeting or town or city council), but they are managed by the municipal officers (selectmen or councilors).

As the trustees of reserve funds, the municipal officers may authorize expenditures from them without a further vote of the legislative body, except for withdrawals from a credit reserve account, which require a determination by the legislative body that a financial emergency exists (see 30-A M.R.S.A. §§ 5802 and 5801(3)(B), respectively). It is imperative, however, that any expenditure from a reserve fund be solely for the purpose for which the account was established. The unauthorized use of reserve funds is a Class C crime.

Even though voter approval is generally not required for an expenditure from a reserve fund, in some municipalities it is routinely requested anyway, presumably in deference to the voters’ wishes. We have no particular quarrel with this practice provided the municipal officers and the voters both understand that it is not legally required except in the case of credit reserves.

For the record, the municipal officers have no authority to “borrow,” even temporarily, from reserve funds to fund some other purpose without approval from the legislative body (see “Borrowing from Reserves,” Maine Townsman, Legal Notes, March 2015).

Nor do the municipal officers have any authority to spend from unappropriated surplus (which of course is very different from a reserve fund) without the legislative body’s approval (see “Unappropriated Surplus,” Maine Townsman, Legal Notes, February 2008).

For more on these topics, see our Municipal Officers Manual, available free to members at www.memun.org. (By R.P.F.)

Question: Do the municipal officers (selectmen or councilors) need voter approval in order to spend money from a reserve fund such as a capital equipment account?

Answer: As a rule, no, but there is one exception.

As we’ve noted here before, Maine law authorizes municipalities to establish reserve or non-lapsing funds for a variety of purposes, including capital improvements, capital equipment, credit reserves for financial emergencies, and sinking funds for paying down debt (see “Reserve Funds,” Maine Townsman, Legal Notes, December 2004). These funds are established by the municipal legislative body (town meeting or town or city council), but they are managed by the municipal officers (selectmen or councilors).

As the trustees of reserve funds, the municipal officers may authorize expenditures from them without a further vote of the legislative body, except for withdrawals from a credit reserve account, which require a determination by the legislative body that a financial emergency exists (see 30-A M.R.S.A. §§ 5802 and 5801(3)(B), respectively). It is imperative, however, that any expenditure from a reserve fund be solely for the purpose for which the account was established. The unauthorized use of reserve funds is a Class C crime.

Even though voter approval is generally not required for an expenditure from a reserve fund, in some municipalities it is routinely requested anyway, presumably in deference to the voters’ wishes. We have no particular quarrel with this practice provided the municipal officers and the voters both understand that it is not legally required except in the case of credit reserves.

For the record, the municipal officers have no authority to “borrow,” even temporarily, from reserve funds to fund some other purpose without approval from the legislative body (see “Borrowing from Reserves,” Maine Townsman, Legal Notes, March 2015).

Nor do the municipal officers have any authority to spend from unappropriated surplus (which of course is very different from a reserve fund) without the legislative body’s approval (see “Unappropriated Surplus,” Maine Townsman, Legal Notes, February 2008).

For more on these topics, see our Municipal Officers Manual, available free to members at www.memun.org. (By R.P.F.)