Key Takeaways
- Special revenue funds are created by governments for specific projects to ensure financial accountability and transparency to taxpayers.
- These funds are distinct from general, capital, and rainy day funds in government budgets.
- Parks, libraries, and public areas can be financed through special revenue funds.
- The GASB’s Statement No. 54 defines and clarifies the use of special revenue funds.
- Cities use these funds for dedicated projects with restricted spending, like stormwater management.
What Is a Special Revenue Fund?
Special revenue funds are established by a government to collect money that must be spent on a specific project. They provide accountability and transparency to taxpayers. Municipalities generally budget money into a general fund, capital fund, “rainy day” fund, and special revenue fund, which are different from a special revenue fund. The Government Accounting Standards Board (GASB) issued Statement No. 54 in 2011 to define special revenue funds.
Understanding the Mechanics of Special Revenue Funds
In the periodic budget process that every municipality goes through, there are negotiations and battles over money—where does it come from, who gets it, and how much they get. There are four basic buckets of budget money to be allocated: general fund, capital fund, “rainy day” fund, and special revenue funds.
The general fund pays for usual and ongoing town expenses; the capital fund is earmarked for large projects, and the rainy day fund is the emergency account for unexpected expenditures. A special revenue fund is established to finance and operate dedicated smaller-scale projects. Parks, libraries, beaches, and town plazas may all be financed by special revenue funds. These projects will have their own set of books for recording cash inflows and outflows.
The Government Accounting Standards Board (GASB) issued Statement No. 54 in 2011, to clarify the definition of special revenue funds, as there was some ambiguity before. From the Statement: “Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects.”
Real-World Application of Special Revenue Funds
A city might establish a special revenue fund to pay expenses associated with stormwater management. The money in this fund could only be used for stormwater management costs, such as street sweeping, drain and ditch cleaning, system maintenance, and a public awareness campaign. The city would be required to publicly report on where it collected the special revenue fund money from and how it spent the special revenue fund’s budget.
The Bottom Line
Special revenue funds are government accounts created to collect money dedicated to specific projects. Generally, funds are allocated into general, capital, rainy day, and special revenue funds during municipal budget planning. Parks, libraries, and other town projects often utilize special revenue funds for financing. Public reporting is required to track the source and use of money in special revenue funds. The GASB’s Statement No. 54 provided clarity on the definition of special revenue funds, separating them from debt service and capital projects purposes.