Adequate Operating Reserves compares reserves that typically provide at least two months of operating funds (i.e., 16.7% of annual expenditures). Reserves are essential to manage cash flow during the year, handle contingencies and emergencies, provide a “rainy day” account for future economic downturns, and assure funding for asset repair/replacement and expansion of facilities and infrastructure. Absent reserve accounts, other metrics include unallocated fund balances or unrestricted net position as reported by agency audits. “Cash” does not always indicate unencumbered funds available for cash flow and contingencies. Additional reserves are usually required for capital improvements, pensions, and other purposes.