A contingency fund is money set aside in a budget to cover unexpected expenses or emergencies that arise during the fiscal year. Contingencies provide flexibility to respond to unforeseen circumstances—emergency repairs, legal settlements, revenue shortfalls, or other surprises—without immediately cutting services or raising taxes. Municipal budgets typically include contingency amounts (often a percentage of the operating budget) that can be accessed with appropriate authorization. Unused contingency may be transferred to reserves at year-end. The appropriate contingency level balances preparedness for the unexpected against the opportunity cost of setting aside money that could fund services.