Enterprise Fund
A self-supporting government fund that operates like a business, charging user fees to cover costs for services like water, sewer, electric, or transit.
How It Works
Enterprise funds are established under GASB Statement 34 as a type of "proprietary fund" and use full accrual accounting (as opposed to the modified accrual used in governmental funds). The theory is that enterprise funds should be financially self-sustaining: the fees charged for the service should cover all operating costs, depreciation, debt service on revenue bonds, and capital investment, meaning no subsidy from the general fund. Common city enterprise funds include water utilities, wastewater/sewer utilities, electric utilities (in roughly 2,000 U.S. municipally owned electric utilities per APPA data), solid waste collection, stormwater utilities, parking garages, airports (with hub airports such as DFW, LAX, ATL operating as enterprise funds), convention centers, golf courses, and transit systems. Enterprise fund revenue and expenses are reported separately from the general fund on the Statement of Revenues, Expenses, and Changes in Net Position within the ACFR. Revenue bonds issued by enterprise funds are backed solely by the enterprise's revenue stream, not the city's full faith and credit, so they typically carry higher interest rates (25-100 basis points above comparable GO bonds). Some cities transfer excess enterprise fund revenue to the general fund through "payments in lieu of taxes" (PILOTs) or franchise fees, a practice that can obscure the true cost of general government operations and has drawn scrutiny from rating agencies and the GFOA. Detroit and Flint both experienced enterprise fund failures that contributed to broader fiscal distress: Detroit's water system required extensive post-bankruptcy restructuring, and Flint's switch to the Flint River in 2014 caused the lead contamination crisis.
Related Terms
- General Fund, The primary operating fund for a city government, covering most day-to-day services like police, fire, parks, and administration.
- User Fees and Charges, Payments collected by city government from individuals who use specific services, water bills, building permits, park admission, recreation program fees.
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About This Definition
This definition is part of the CitySpend Municipal Finance Glossary, 59 terms explaining how city governments fund and manage public services. All definitions are written in plain language for taxpayers, journalists, students, and municipal bond investors.