A restricted reserve is a municipal fund whose use is legally or policy limited to specific designated purposes. Restrictions may come from provincial legislation (requiring certain reserves), external funders (grants restricted to particular uses), or municipal policy (council designating reserves for specific purposes like equipment replacement or tax stabilization). Restricted reserves cannot be used for general purposes without lifting the restriction through appropriate authority. This contrasts with unrestricted reserves available for any legitimate municipal purpose. Financial statements distinguish restricted from unrestricted reserves. Restrictions ensure funds are available for intended purposes and prevent diversion to other uses.