In a recent city meeting, it was decided that the local government would build a new town hall using long-term bonds, intergovernmental transfers, and public donations. However, the administrators faced difficulties determining how the latter source of revenue should be recorded. For this reason, decision-makers were divided into two groups based on the solutions they supported. The first party suggested establishing a permanent fund to record the principle of the investments and initiating a special revenue fund to account for the return on assets and their use. Contrary, the second group proposed creating a private-purpose trust fund to document the principle and interest. In this regard, this essay seeks to argue why suggestions of the first group are more suitable for the current project purposes. Moreover, the paper suggests that capital projects funds should be used to record the returns on investments and their application instead of a special revenue fund.
Sponsoring governmental programs is beyond of the private-purpose trust fund’s scope as it aims at benefiting entities legally separate from the official administration, such as individuals, private companies, and other governments. Contrary, the returns on investments from the permanent funds may be used for either the former or the latter purposes (Menifield, 2020). Although the new town hall is built for residents benefit, there is still no direct value for the latter. Therefore, it can be concluded that the suggestions of the first group are more suitable for the project.
Additionally, the public donations recording process may be improved if the capital projects fund is used instead of the special revenue fund. Such a decision is explained by the fact that the former specifically addresses government activities related to the acquisition and /or construction of capital facilities. Moreover, there are two more revenues to consider, namely long-term bonds and intergovernmental transfers. Therefore, all the incomes and expenditures can be accounted for in one document with a special purpose.
Overall, the current paper discussed why establishing a permanent fund, and a special revenue fund is better than creating a private-purpose trust fund. It was argued that permanent funds might generate revenues to sponsor all the legal entities, including the government itself. Contrary, revenues from the investment of private-purpose trust funds cannot be used to benefit the latter. Moreover, it was suggested that capital projects funds should be used instead of special revenue funds.
Reference
Menifield, C. E. (2020). The basics of public budgeting and financial management: A handbook for academics and practitioners. Hamilton Books.