The definitions of special revenue, capital projects and debt services funds were changed or clarified in this& accounting standard. A special revenue fund can only be used if a significant amount of revenue supporting the activities is restricted or committed for that specific purpose (other than debt service or capital projects). Restrictions must be imposed by an external source such as the state or federal government. A common example is the state street aid fund, which is supported by revenues restricted by state law to be spent on specific street-related expenditures. The restricted source of revenue has to be considered a substantial source of revenue for the fund. A committed revenue source would be one that the full governing board has passed a resolution committing that stream of revenue for a specific purpose and that constitutes a substantial funding source of the fund.

Capital projects funds may include expenditures for general capital purchases. In the past capital projects funds have been used primarily for major construction projects. Only general fund capital projects should be accounted for in capital project funds, any capital projects done proprietary funds (i.e. utilities funds) should be accounted for in their respective funds.

Debt service funds are to be used when legally required or when resources are being accumulated to pay for principal and interest on long-term debt. This is simply a clarification from previous standards.

Practical Suggestions
Fund Types
Some special revenue funds currently established by governments may not meet the definition of a special revenue fund under GASB 54. Tennessee law was changed to require solid waste fund to be accounted for in accordance with generally accepted accounting principles (GAAP). This requires solid waste funds to be accounted for in a special revenue fund or an enterprise fund, unless required to be accounted for in the general fund as noted above. Fees charged for solid waste services are considered restricted and are not to be used for other purposes TCA Section 68-211-835 (g)(1). The Comptroller of The Treasury, Division of Local Government Audit issued the following guidance:

“Municipalities that provide only collection service to their residents are required to account for this service in a separate fund. In many instances these activities will be accounted for in a special revenue fund.”

The complete directive from Division of Local Government Audit can be found in the Audit Manual, FinalCopyof2021AuditManual.pdf (tn.gov)