A special revenue fund is an account established by a government to collect money that must be used for a specific project. Special revenue funds provide an extra level of accountability and transparency to taxpayers that their tax dollars will go toward an intended purpose.

Breaking Down Special Revenue Fund

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."

Example of a Special Revenue Fund

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.