Your government cannot give anything to anyone without taking the money to pay for it from someone else first. This basic concept is the engine that drives public spending at all levels of government. Funds to pay for government operations and programs are obtained through the mechanism of taxation. After collecting taxes, the next step is determining where the money should go, which brings you to the concept of a general fund and a special revenue fund. Though similar and different, both are a theoretical holding area for money waiting to be spent by the government.
Any government, whether it be federal, state or local, has what is called a general fund that acts as a record of all assets and liabilities. The general fund of a government serves a similar function to a general ledger for a private company. Administrative and operating expenses are paid from the general fund and all income is kept there that has not been designated for a special purpose. Since the money for the majority of bills and programs comes from this fund, it is typically much larger than a special revenue fund.
Special Revenue Fund
Think of a special revenue fund as a repository for money earmarked for a particular purpose. Normally much smaller than the general fund, a special revenue fund might contain money set aside for a road project, library, or parks. A special revenue fund is set up so that money spent on whatever the project may be can be accounted for separately from the general fund. Money reaches the special fund by being set aside from the general fund, or diverted at the time of collection.
The main similarity between a general fund and special revenue fund is that both are created and maintained by the imposition of taxes and fees on citizens of the jurisdiction. Both types of funds exist on the three main levels of governments --federal, state local--and all would be empty if it weren't for taxes.
All governments have a general fund. A special revenue fund is only necessary when there are special projects to be paid for, so often a government operates without a special revenue fund. Another difference between the two funds lies in how the the money is spent. Money from a special fund is restricted by law or contract to be spent only on the purpose for which the fund was created. The general fund doesn't have these limitations; any bill can be paid from it.
Derek Dowell has ghostwritten dozens of projects and thousands of blogs in the real estate, Internet marketing and travel industry, as well as completed the novel "Chrome Sombrero." He holds a Bachelor of Science in environmental legal studies from Missouri State University.