IMPACTSound financial management practices are critical to fiscal resilience and help governments sustain public services over time. General fund balances serve as important fiscal slack that can help governments manage economic fluctuations and stabilize spending. This article shows that fund balances classified under the Governmental Accounting Standards Board Statement No. 54 (GASB 54) matter in practice. Restricted and committed general fund balances appear more closely linked to expenditure stabilization than assigned or unassigned balances, suggesting that formal reserve structures can support disciplined fiscal management. At the same time, stricter withdrawal rules may limit the usefulness of these reserves. Although GASB 54 applies to US state and local governments, the broader lesson is relevant internationally. Fiscal reserves may be more useful for stabilization when they are formally structured and accessible during periods of fiscal pressure.
Jiseul Kim (Tue,) studied this question.