A capital reserve is a fund where municipalities save money designated for future capital projects and asset replacement. Rather than funding all capital through borrowing or one-time grants, prudent municipalities build reserves to smooth out capital costs over time. Contributions come from operating budget transfers, development charges, proceeds from asset sales, and other sources. Capital reserves provide flexibility—allowing projects to proceed when needed without waiting for external funding—and reduce borrowing costs. Reserve policies typically set target balances and specify permitted uses. Building adequate capital reserves is an important element of long-term financial sustainability and infrastructure planning.