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Introduction

Governments use special funds to organize their money and make sure it is spent the right way. Two of the most important funds are the Capital Projects Fund and the Debt Service Fund. The Capital Projects Fund is used for building big things like schools, roads, or fire stations. The Debt Service Fund is used to pay back the money the government borrowed to build those projects.

Capital Projects Fund

The Capital Projects Fund is created when a government plans to build something big that will last a long time. The money for this fund usually comes from three places: selling bonds (borrowing from investors), getting grants from the state or federal governments, and collecting certain taxes that are set aside for projects. This money is only used for major costs such as buying land, hiring engineers, or paying for construction. It is not used for small repairs or regular maintenance.

Accountability in Capital Projects Fund

To make sure the money is spent properly, the Capital Projects Fund prepares financial reports. These reports include a balance sheet, which shows what the fund owns and owes, and a statement of revenues and expenditures, which explains how money came in and how it was used. This gives taxpayers confidence that the money is being handled responsibly.

Debt Service Fund

The Debt Service Fund is focused on paying back debt. When governments borrow money by selling bonds, they must repay both the amount borrowed (called the principal) and the extra cost of borrowing (called the interest). Money for the Debt Service Fund often comes from property taxes, other tax revenues like sales taxes, transfers from the General Fund, or even interest earned from investments. This fund can only be used to make debt payments, which helps the government keep its promises and maintain trust.

How They Work Together

The two funds work hand in hand. First, the Capital Projects Fund collects and spends money to build things like schools or bridges. After the project is finished, the Debt Service Fund takes over to make sure the borrowed money is repaid over time. This system allows governments to improve communities while still staying financially responsible. It provides transparency, accountability, and stability for both taxpayers and investors.

These funds are important because they directly affect the services people use every day. Without the Capital Projects Fund, communities might not get new schools, parks, or safe roads. Without the Debt Service Fund, governments might not be able to borrow money in the future because lenders would not trust them. By keeping these funds separate and well managed, governments show citizens that their money is being used wisely. In the long run, this system benefits everyone. Communities get to enjoy new facilities and better infrastructure, while taxpayers and investors know the government is being careful with money. By balancing new investments with responsible debt repayment, governments can continue to grow and improve public services without putting future generations at financial risk.

References

Governmental Accounting Standards Board. (2011). Fund balance reporting and governmental fund type definitions (Statement No. 54). Norwalk, CT: GASB. https://gasb.org/page/ShowPdf?path=GASBS+54.pdf&title=GASB%20STATEMENT%20NO.%2054,%20FUND%20BALANCE%20REPORTING%20AND%20GOVERNMENTAL%20FUND%20TYPE%20DEFINITIONS

Office of Financial Management. (n.d.). Definitions of fund types and roll-up funds. Washington State. Retrieved September 18, 2025, from https://ofm.wa.gov/accounting/fund-reference-manual/definitions-fund-types-and-roll-funds

University of Tennessee County Technical Assistance Service. (n.d.). Capital funding sources and debt financing. Retrieved September 18, 2025, from https://www.ctas.tennessee.edu/eli/capital-funding-sources-and-debt-financing

Washington State Office of Superintendent of Public Instruction. (2020, September 1). Chapter 11 - Debt Service Fund Accounting (Accounting Manual for Public School Districts). Washington State. Retrieved September 18, 2025, from https://ospi.k12.wa.us/sites/default/files/2023-08/2021_16_sdam_chpt11_debt_service.pdf