Question

Identify the appropriate fund to account for construction-type special assessments.

Answer 1

Special assessments may be either service types or construction types. Service-type special assessments, such as an assessment to downtown businesses for special garbage removal or police protection, would be accounted for in the appropriate fund, often the General or a special revenue fund.

Construction-type special assessment projects account for longer-term projects that often require debt financing. Identifying the appropriate fund to account for construction-type special assessments depends on the terms of the agreement between the government and the property owners. Special assessments for construction projects may be accounted for in one of two ways.

For example, assume that $500,000 is borrowed to install street lighting and build sidewalks in a newly annexed subdivision. Five-year special assessment bonds were issued to finance the project, which is administered by the city. Since city law requires that the provision of lighting and sidewalks is the responsibility of property owners, a special assessment (property tax) is levied against the property owners in that subdivision for a five-year period. The proceeds of the assessment are used to pay the principal and interest on the debt.