Here's a better design.
Create a table that can hold information about hierarchical virtual folders. Something like this:
CREATE TABLE ReportFolders (
FolderID int IDENTITY(1,1),
FolderName varchar(100) NOT NULL,
ParentFolderID int NULL
)
Your reports table can contain a FolderID column that contains the ID of the folder under which the report is shown.
Add a tree view to your reports page and show the folders from the table in the TreeView. Initially fill the TreeView with the top level folders (where ParentFolderID is null). In the node expand event, add the nodes representing the child folders (ParentFolderID = Id of the current folder) and the reports under the folder (where Reports.FolderID = Id of the current folder).
This will result in a much better Reports management system than a single level dropdown list.