A special revenue fund is a fund created by a local government that is used specifically for only one purpose. It usually comes from a tax on citizens, but the funds raised from the tax are either earmarked for a single government project or are directed to a single department. There are many ways in which a special revenue fund can be used, including maintaining local infrastructure, creating contingency funds for emergencies, or undertaking new construction projects within a city or town. All money in the fund must be accounted for and there must be proof provided that they are being funneled to the intended purpose.
Local governments encounter many expenses in the process of maintaining the health and welfare of their citizens. Most of these expenses are paid for by using money contained in the operational budget of the town or city in question. There are, however, special circumstances which call for a municipality to create an account solely for a single purpose. Such an account is known as a special revenue fund.
The distinguishing characteristic of a special revenue fund is that the money found within it can be used for just one purpose. Collection of these monies usually requires some sort of special taxation on the citizens of the town or city. It should be made clear to the citizens exactly where the taxes are headed. These taxes will often be willingly paid by citizens as long as they aren't too burdensome, since the citizens know that they are ultimately benefitting the community in which they reside.
As part of the legal restrictions that surround a special revenue fund, all money collected for the fund must be used for just the intended purpose. A municipality that collects excess money in such a fund, for example, can't suddenly decide to funnel this extra money to other expenses. In addition, there must be public reporting of both the monies collected and the expenditures made from the fund for the specific target.
There are many ways that a community can utilize a special revenue fund. In many cases, the funds are used to help out with basic infrastructure projects like the maintenance of roads or the rebuilding of public property. Sometimes the fund can be enacted for a new project like the building of a new school or the construction of a new highway. Funds filled with special revenue can also be used as emergency funds. When this is the case, the money in the fund is held in reserve until some sort of emergency demands its use.