Municipal finance is based upon fund accounting. This means that all revenues and expenditures are classified and assigned to a particular fund for tracking. This segregation of funds provides a level of accountability to ensure that public funds are expended in an appropriate manner. State law and general accounting principles create a set of rules and accepted procedures that cities must adhere to when budgeting and accounting.
The General Fund
The General Fund is the chief operating fund of the city. This fund supports those operations most identified with the city, such as fire, police, parks and recreation and library. The largest revenue deposited to the general fund is property taxes. However, the general fund also receives all other income that is not required by law or contractual agreement to be deposited elsewhere. This can include revenues received from hotel/motel tax, license and permits, earnings of investments, permits and intergovernmental revenues.
Cities often make transfers between funds in order to accurately portray their expenditures. For example, a new public works facility may be financed from several revenue sources, such as the Road Use Tax Fund, the General Fund and various Enterprise Funds. Cities will often transfer these revenues to the Capital Improvements Fund for combined expenditure on the project. Please visit the Fund Transfers page for more information.
Special Revenues Funds
The Special Revenues Funds contain the proceeds from a specific source and are required by law or regulation to be accounted for separately and used for a specific purpose. Examples include Tax Increment Finance revenues, Road Use Tax Fund revenues and the property tax revenue dedicated to employee benefits. Cities may also use this fund type for the proceeds of local option sales tax which have limited ways the revenues must be used.
The Permanent Fund
The Permanent Fund is used to account for resources that are legally restricted so that only the earnings, and not the principal, may be used to support a governmental operation. The most common usage of this classification is perpetual care cemeteries.
The Debt Services Fund
The Debt Services Fund is dedicated for the payment of principal and interest on the city’s long term debt. Much of this fund consists of property tax revenue; however revenues from other sources are frequently transferred to this fund.
The Capital Projects Fund
The Capital Projects Fund is used by cities to account for the resources used in the acquisition and construction of large capital projects.
The Enterprise Funds account for operations that operate in a manner similar to a business, such as the city utilities. The intent is to establish a rate or charge to sustain the current and long-term operation of the utility. Due to the expense associated with operating utilities, enterprise funds often have large amounts of cash that are being held in reserve for future improvements or emergencies.