🏛️ Issues and Advocacy Training
Courses › Local Government 101: Budgets, Levies and Bonds

Lesson 3 of 9 · about 16 minutes

Funds, Budget Books and Audits: Reading the Documents

You'll be able to

  • Tell general, special revenue, capital, debt service and enterprise funds apart
  • Find revenue, spending, transfers and fund balance in a budget document
  • Calculate how many months of reserves a general fund holds
  • Know which Idaho local governments must be audited and where audits are filed

Governments do not keep their money in one pot. They keep it in funds, each a separate set of books with its own revenue, spending and savings. Once you can see the funds, a 200-page budget book shrinks to a handful of questions. Without them, you will end up saying the city "has $40 million in the bank" when $30 million of it is locked to sewer bonds.

Idaho Code 50-1002 requires a city budget to itemize spending "by department, fund, or service," so the fund structure is right there in the notice and the budget book.

The fund types

Fund typeWhat goes in itTypical money sourceQuestion to ask
General fundPolice, administration, planning, parks: anything without its own dedicated moneyProperty tax, state shared revenue, fines, some feesHow big is the reserve, and is it shrinking?
Special revenue fundsActivities with a dedicated revenue source, like streets paid by highway user funds, or a library levyRestricted taxes, grants, dedicated leviesIs the money being spent on what voters approved it for?
Capital projects fundsBuilding or buying big long-lived things: a fire station, a schoolBond proceeds, grants, transfers, impact feesIs the project on budget and on time?
Debt service fundsPaying principal and interest on general obligation bondsBond levies on the tax billWhen does each bond retire?
Enterprise fundsWater, sewer, garbage, airport, golf courseUser charges and revenue bondsDo rates cover costs, and does money move out to other funds?
Internal service fundsServices one department sells to others, like vehicle maintenance or insuranceCharges to other departmentsAre departments being overcharged to hide costs?
Fiduciary fundsMoney the government holds for someone else, like a pension trust or taxes collected for other districtsVariousUsually background, except when pension funding is short

Small districts may have only two or three funds. A county may have forty. Counties are big on fiduciary money because the treasurer collects taxes for every district and passes them on.

Fund balance: the savings account

Fund balance is what is left in a fund after its bills. GASB Statement 54 splits it into five categories: nonspendable (like inventory), restricted (by law or a grant), committed (by the board's own formal action), assigned (set aside for an intended use) and unassigned. The last three together are "unrestricted" fund balance, the money the board could actually redirect.

The Government Finance Officers Association (GFOA) recommends that general-purpose governments keep unrestricted general fund balance of "no less than two months" of regular general fund revenues or spending. That is a floor, and GFOA says each government should set its own level by its risks. A town that depends on one big employer, or that gets wildfire seasons, may want more.

Example: is Larkspur's reserve healthy?

The invented city of Larkspur's general fund:

LineFY2025 actual
Revenues$9,200,000
Expenditures$9,000,000
Transfer in from water fund$300,000
Unassigned fund balance at year end$1,100,000

Months of spending covered: $1,100,000 / $9,000,000 = 0.122. Times 12 months = 1.47 months.

GFOA's two-month floor would be $9,000,000 / 12 x 2 = $1,500,000. Larkspur is $400,000 short.

Now look at the transfer. Without the $300,000 from the water fund, revenues minus spending would be $9,200,000 - $9,000,000 = $200,000. With it, $500,000. So more than half of this year's general fund surplus came from water customers. That might be a legitimate payment for services the general fund provides to the water utility, like billing staff or city hall space. It might be a quiet subsidy. Ask for the written cost allocation study that justifies it.

How to read a budget book in twenty minutes

  1. Find the summary by fund. Most budget books have a one-page table of every fund: beginning balance, revenue, spending, transfers, ending balance. Start there.
  2. Read the general fund revenue page. Note property tax as a share of the total. Look for one-time money (grants, land sales) propping up ongoing spending.
  3. Read spending by department, then by category. Salaries and benefits are usually the biggest category in a general fund, so a small percentage raise is a big dollar number.
  4. Find the transfers. Money in and out of each fund. Any transfer from an enterprise fund to the general fund deserves a question.
  5. Compare ending fund balance to last year. A budget that plans to spend reserves is a choice someone should explain.
  6. Look at the capital plan. Projects listed for future years tell you what bond or levy request is coming.
Budgets are plans. Audits are what happened. A budget can show anything. An audit is a licensed outside firm saying whether the books fairly show what really occurred.

Audits and the ACFR

Idaho Code 67-450B sets minimum audit rules for every city, county and district that is its own legal entity:

Annual spending from all sourcesMinimum audit requirement
More than $300,000Full audit of financial statements every fiscal year
More than $200,000 up to $300,000Annual audit, or a biennial audit if the entity chooses, under conditions in the statute
$200,000 or lessNo minimum requirement under this section

The audit must follow government auditing standards set by the U.S. Government Accountability Office, the auditor must be hired on written contract, and the entity must file a copy with the Legislative Services Office within nine months after the end of the audit period. Federal grant rules can require more. So you can request a district's audit from the district or from the Legislative Services Office.

When you get one, read these parts first:

  • The auditor's opinion. A "clean" or unmodified opinion means the statements are fairly presented. Anything else (qualified, adverse, or a disclaimer) is a red flag.
  • Management's discussion and analysis. The government's own plain-language summary of the year.
  • Findings and the management letter. Weak controls, late reconciliations, one person handling both deposits and the books. Small-town embezzlement cases often surface here first.
  • Notes on debt and pensions. Every bond, its rate and when it ends.

Larger governments often publish an ACFR. The C is a word this course's style rules ban, so the letters will do. GASB renamed the old CAFR to ACFR in Statement 98 in 2021 without changing its contents. An ACFR adds an introductory section and a statistical section with ten years of trends: tax rates, top taxpayers, debt per resident. GFOA runs a voluntary certificate program, started in 1945, that reviews these reports. The certificate is about the quality of the report, and GFOA says plainly it is not a rating of the government's financial health.

Common mix-ups

  • Claim: The city has millions sitting in the bank, so it does not need a rate increase. What the evidence shows: Check which fund holds it and how it is classified. Restricted bond money and committed capital reserves cannot pay for the general fund. Unassigned general fund balance is the honest comparison.
  • Claim: A clean audit means the government spends wisely. What the evidence shows: An audit opinion says the numbers are fairly presented. It says nothing about whether the spending was smart.
  • Claim: Fund transfers are illegal raids. What the evidence shows: Many are legal payments for shared services. The question is whether a documented cost study supports the amount.

Reporting angle

  • Request the last three audits and management letters. Track whether the same findings repeat.
  • Build a five-year table of general fund unassigned balance and convert it to months of spending.
  • List every transfer out of an enterprise fund and ask for the cost allocation study behind it.
  • If a district spends over $300,000 a year and has no recent audit on file, ask why. That is a 67-450B question.

Research angle

Check yourself

1. A city's water department charges customers and pays its own costs from those charges. Which kind of fund usually holds that money?

2. A general fund spends $12 million a year and ends the year with $1.5 million unassigned. Roughly how many months of spending does that cover?

3. Under Idaho Code 67-450B, a local government that spends more than $300,000 a year from all sources must:

4. Where must an Idaho local government file its completed audit, and how fast?

5. What does a transfer between funds usually tell you?

6. GASB Statement 98, issued in 2021, did what to the CAFR?

Terms in this lesson

Fund
A separate set of accounts for money with a specific purpose or legal restriction. Governments keep many funds instead of one checking account.
General fund
The main operating fund for things without a dedicated revenue source, such as police, administration and parks.
Enterprise fund
A fund for a service run like a business and paid mostly by user charges, such as water or sewer.
Fund balance
What is left in a fund after liabilities: the government's savings for that fund, split into categories by how freely it can be spent.
ACFR
The fullest annual financial report a government can publish, with introductory, financial and statistical sections. Formerly called the CAFR.
Transfer
Money moved from one fund to another inside the same government.

Full glossary

Sources