Special Revenue Fund
A Special Revenue Fund is a type of governmental fund used in governmental accounting to account for specific revenue sources that are restricted or committed for a particular purpose other than capital projects or debt service. Unlike the General Fund, which accounts for general operations not covered by other funds, the Special Revenue Fund ensures that certain revenues are used only for the specific purposes set by law, regulation, or administrative action.
Characteristics and Uses of a Special Revenue Fund:
- Specific Revenue Sources: These funds are derived from specific taxes, grants, or other types of revenue. Examples might include gas taxes designated for road maintenance or federal grants intended for specific educational programs.
- Restricted Use: Money in a Special Revenue Fund can only be used for the purpose for which the fund was established. For instance, if a city collects a special tax to maintain parks, the revenues from that tax would be placed in a Special Revenue Fund and could only be used for park-related expenses.
- Expenditure Limits : The expenditures from these funds should relate directly to the fund’s purpose. Using the previous example, the park maintenance fund might be used to pay for landscaping, playground equipment, or park ranger salaries.
- Periodic Review : Special Revenue Funds should be reviewed regularly to ensure that revenues and expenditures are aligned with the fund’s designated purpose. If a revenue source for a specific fund disappears or diminishes, the fund may need to be reevaluated or dissolved.
- Non-capital and Non-debt Service : While Special Revenue Funds are for specific purposes, they shouldn’t be confused with Capital Projects Funds (used for significant capital projects like building a new city hall) or Debt Service Funds (used to account for the accumulation of resources for and the payment of long-term debt principal, interest, and related costs).
Example of a Special Revenue Fund
Let’s delve into a detailed example involving a Special Revenue Fund.
Scenario: Library Support Tax
Setting the Scene:
A small town named “Booksville” is renowned for its rich literary heritage and has a significant community of avid readers. However, the town’s library, which is a valuable resource for residents, is facing budget constraints. To ensure the library’s continued operation and development, the town’s council proposes a special library support tax on local businesses benefiting from the literary tourism in the town.
Creation of the Special Revenue Fund:
- Proposal & Approval: The town council proposes a 1% tax on the revenues of businesses that benefit from literary tourism, such as bookstores, themed cafes, and souvenir shops. After public consultations and a majority vote, the tax is approved.
- Establishing the Fund: The “Booksville Library Support Fund” is established as a Special Revenue Fund to account for the proceeds from the new tax.
Operation of the Special Revenue Fund:
- Collection: Throughout the year, the town collects the 1% tax from the specified businesses and deposits all proceeds into the Booksville Library Support Fund.
- Usage Restrictions: The funds can only be used for library-related expenses. This might include:
- Purchasing new books, e-books, or audio books.
- Upgrading library infrastructure, such as computer systems or reading spaces.
- Organizing library events, workshops, or reading clubs.
- Maintenance and utility costs of the library building.
- Annual Review: At the end of the fiscal year, the town council reviews the Special Revenue Fund. They assess:
- The total amount collected.
- How the funds were spent.
- The impact of the improvements or programs on library usage and community satisfaction.
- Transparency & Reporting : A detailed report is shared with the public, showcasing the fund’s revenue and expenditures. This ensures that Booksville’s residents can see how the money was utilized and the benefits derived from the special tax.
- Excess Funds: At year-end, any excess funds not used remain within the Special Revenue Fund. They are earmarked for future library projects and cannot be diverted to other town expenses.
Outcome:
Thanks to the Booksville Library Support Fund, the town’s library sees significant improvements in its collection and infrastructure. The community benefits from enhanced library services, and the town’s literary heritage continues to flourish. The transparent use of funds also builds trust among residents, knowing that the specific tax they approved directly benefits a cause they value.
This example showcases how a Special Revenue Fund provides a transparent, accountable mechanism to ensure that specific revenues are used for their intended purpose.
