The Use of Enterprise Funds in America’s Local Governments

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Roger Kemp
May 16, 2017

An Enterprise Fund is created when a public service generates sufficient revenues to pay for its cost. It is a simple concept, and one gaining in popularity among public officials in local governments throughout our national, because of:

… The nationwide aversion to increasing property taxes.

… The publics’ aversion to increasing revenues from other local forms of taxation.

… Fewer funds from our States and Federal Governments.

… Certain public services should not be subsidized by taxpayers who do not use them.

… A service that does not directly benefit the public should paid by the users.

… It is easier for politicians to raise user fees rather than increasing taxes.

Traditionally, several public services have been financed by Enterprise Fund revenues. Such as the following public services:

• Water Services,
• Power Services,
• Sewer Services,
• Sanitation Services,
• Parking Garages, and
• Local Airports.

In recent years the following public services are increasingly being financed this way:

• Golf Courses,
• Stadiums and Arenas,
• Convention Centers,
• Museums (certain programs),
• Libraries (certain programs),
• Zoos, and
• Recreational Programs (certain programs.

Under the Enterprise Fund financing concept:

• When the budget goes up the fees must be increased;
• If discounts are given to some users, other users must pay more, to offset the revenue loss;
• You can do Revenue Bonds for capital projects financed for Enterprise Fund projects; and,
• Fees must be raised with the additional funds being dedicated to pay for the debt (both the payment amount as well the duration of the bond loan). These revenues must be “dedicated.”

It is usually more politically acceptable to raise user fees a little each year, rather than to have a larger user fee increase every few years. It makes sense not to have non-service user taxpayers pay for public golf course operations. It also makes sense not to have taxpayers that are non-boat-owners subsidize a municipal-owned marina. Only the users should pay for such services, since they are the only one benefiting from them.

The use of Enterprise Funds treats a public service as a “profit center” – where only the users pay for the cost of the service!

If you feel that the service only benefits those who use it, then the service may be suitable for Enterprise Fund financing. Think about it. This trend is here to stay!

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Author: Roger L. Kemp, PhD, ICMA-CM, is a Professional in Residence, University of New Haven; and a Distinguished Adjunct Professor, Golden Gate University. Roger is also past-president of two state ASPA Chapters (The Monterey Bay Area, CA, and the State of CT).

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