A local government can adopt a budget in which total sources equal total uses and still face a recurring financial gap.

The key is to separate one-year balance from structural balance.

The Government Finance Officers Association (GFOA) explains that a budget may satisfy a formal balanced-budget requirement while using nonrecurring resources—such as reserves or asset-sale proceeds—to support ongoing expenditures. A stronger long-term test is whether recurring revenues are sufficient to support recurring expenditures.

§ Recurring versus nonrecurring

Recurring revenue is money a government can reasonably expect to receive again, such as stable property-tax revenue, recurring service charges, or other continuing sources.

Nonrecurring revenue includes items such as asset sales, legal settlements, temporary grants, extraordinary transfers, or unusually high portions of volatile revenue.

Recurring expenditures include costs such as salaries, benefits, contracts, utilities, routine maintenance, and continuing service operations.

Nonrecurring expenditures are one-time or limited-duration needs, such as a discrete repair or equipment purchase.

The most important mismatch is:

temporary resource + recurring obligation

For example, if recurring revenue is $100 million and recurring expenditures are $104 million, a $4 million reserve transfer can make the current budget balance. But if nothing changes, the same $4 million pressure returns next year.

§ Reserve use is not automatically a problem

Reserves can help governments absorb emergencies, recessions, revenue shocks, and other temporary pressures.

The concern appears when reserves are repeatedly used to finance ordinary ongoing services without a credible plan to restore recurring balance.

GFOA guidance recommends connecting temporary reserve use to a plan for returning to structural balance and rebuilding reserves.

§ What readers should check

When a budget says it is balanced, ask:

  1. Are recurring revenues identified?
  2. Are ongoing services supported by ongoing resources?
  3. Are reserves being used to close the gap?
  4. Are one-time receipts supporting permanent commitments?
  5. What happens next year if those temporary resources disappear?
  6. Does a multi-year forecast show the gap narrowing or continuing?

Structural balance is a financial-management framework, not one universal legal rule. Balanced-budget requirements and reserve rules vary by jurisdiction.

The durable question is simpler:

Are ongoing services supported by resources that can reasonably continue?

§ Sources and further reading

See also What Does Fund Balance Mean—and Is It Available to Spend?.

Educational Disclaimer: The content provided on "How Public Money Works" is intended strictly for civic educational purposes. It does not constitute legal, financial, accounting, or political advice. Local government structures, laws, and public finance practices vary significantly by state, county, city, and special district. Always consult your local government's official documents and qualified professionals for guidance specific to your jurisdiction.