Reserve funds, like other savings plans, are mechanisms for accumulating cash for future capital outlays and other allowable purposes. The practice of planning ahead and systematically saving for capital acquisitions and other contingencies is considered prudent management. Savings for future capital needs can reduce or eliminate interest and other cost associated with debt issuances. Similarly, certain reserve funds can be utilized to help protect the budget against know risks (a potential lawsuit) or unknown risks (a major ice storm).
Source: Office of the New York State Comptroller-Local Management Guide for Reserves