City budgets are different than most
(which is the most likely reason it may not appear to make sense - they really do)

Cities operate like conglomerate corporations: (this may add to the confusion, but I sincerely hope not, and it is important to getting a good understanding of what is going on)

1. multiple independent businesses (in fact we have special types of businesses - click here to learn more)

2. each one keeps its own "books", including separate cash accounts (this is required by state law)

3. none of them can intermingle their resources (unless specifically permitted by the law)

4. each must budget separately from the other

5. they buy and sell services to each other as if separate businesses

6. These are called "Funds" (we will use a capital F when we mean these kind of Funds as opposed to money - funds)

The separate Funds of the city each have their own types of activities and sources of money.  Here are a few examples:

1. Street Fund - gets its money from gas taxes (and a few other places) and can only be used for street maintenance and improvements. Because the revenue is dedicated to this specific purpose, this is known as a "Special Revenue Fund".
   

2. Arterial Street Fund - another gas tax Fund (here the legislature added an extra layer of requirements to the Street Fund above) which can only be used for improving arterials - another Special Revenue Fund.
   

3. Capital Projects Fund - like it sounds, this fund is specific to a capital project and is usually named after the fund, such as Main Street Renovation Fund.
   (Is this making sense so far?)
   

4. Bond Repayment Funds - like it sounds, the money in this fund is restricted to making debt payments.  They are often named after the debt they are dedicated to repaying, such as the 1996 GO Bond Debt Fund.
   

5. Utility Fund - Many cities operate water, sewer, garbage and even electricity utilities.  Utility funds may be combined with other utility funds (but never other kinds of Funds) under certain circumstances, however utility funds can never be combined with other types of funds.  These are operated like businesses with customers outside the city.
   
   Another example (but not a utility) would be a golf course or parking garage operated by the city.
   (Are you having fund (oops sorry) yet?)
   

6. Internal Service Funds - Like motor pools, printing shops, etc. are operated like businesses, but their customers are other city departments (and occasionally other governments).
   

7. General Fund - Accounts for "none of the above" - no really, that is the official definition.  Also, the General Fund is the place where all the generic tax money goes, so it pays for those types of things - like police, finance, fire, planning, council, finance, parks, library, mayor, finance (did I say finance?  that's my favorite)

Well, now you know that cities are more complex than you thought.  But why?  Why have we made it so complicated to keep track of the budgets and accounting for a city?

There are a few answers (nothing is ever easy): 

First, many laws require a separate type of accounting for specific activities (such as special revenue Funds)

Secondly, the Funds behave differently.  We would not want to account for our police department the same way we account for the sewer service.  The nature of the revenues are different and the accounting rules are different as a result.

Third, the City Councils often want it that way.  It can help them keep better track of things.

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