Municipalities can recover costs for some specific services through the use of enterprise funds.  An enterprise fund is a separate accounting and financial reporting mechanism for municipal services for which a fee is charged in exchange for goods or services. It allows a community to demonstrate to the public the portion of total costs of a service that is recovered through user charges and the portion, if any, that is subsidized by the general fund.

With an enterprise fund, all costs of service delivery--direct, indirect, and capital costs--are identified. This allows the community to recover total service costs through user fees if it chooses, so services utilized by a limited number of residents are not necessarily subsidized by the entire municipality.  Enterprise funds also provide more useful management information because revenues, expenses, and performance are accounted for separate from the general fund.  Enterprise accounting also enables communities to reserve the "surplus" or net assets unrestricted generated by the operation of the enterprise rather than closing it out to the general fund at year-end.

Services that may be treated as enterprises include, but are not limited to: public utilities (water, sewer, stormwater, trash disposal); health care (ambulance service, nursing homes); recreation (skating rinks, pools, golf courses); and transportation (airports, dock and wharf facilities.)  A community may not establish enterprise funds for normal government operations or services such as public safety, inspectional services or cemeteries.  Public utilities are excellent candidates for enterprise funds because they can be used to ensure that customers are paying for the full cost of service delivery, including the costs necessary for ongoing maintenance, upgrades, expansions, and conservation programs. 

12.a    Municipalities should establish enterprise funds for public utilities

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