Understanding the Recreation Revolving Fund

By Paul Sanderson 

By Paul Sanderson 

The legislature has given municipalities authority to adopt and use a variety of financial tools to accomplish various public purposes. The “capital reserve fund” sets money aside for a future major expense. The “special revenue fund” puts aside money from a specific source of revenue, such as billings for ambulance services, and restricts expenditures to a specific purpose. Finally, there is the “revolving fund” that accepts revenue from users in a specific program and allows that revenue to be used to support the program. The Department of Revenue Administration website features a chart that compares the various tools.

Let’s look a little more closely at the recreation revolving fund, which was authorized by legislation adopted in 1993. There are two statutes involved: RSA 35-B:2 and RSA 41:29. The revenue source is “fees and charges for recreation park services and facilities.”

Q. How is the recreation revolving fund created, and why is it such a useful tool?

A. The fund is created by a vote of the legislative body, which means a warrant article at the town meeting, or a vote of the city or town council. Once created, the money deposited into the fund is allowed to accumulate from year to year, unlike normal municipal funds which “lapse” at the end of each fiscal year. As programs are designed and offered, the users pay a program fee to support their participation in the program. This means that officials responsible for recreation can confidently plan the programs they wish to offer, and have access to a source of cash to pay for items that are needed in advance. Thus, coaches can be trained, programs may be advertised, and supplies can be ordered in bulk before the program actually begins. Without such a fund, there is always a possibility that money might not be appropriated for the program during the annual budget process, or that the appropriation will be either too small to support a popular program, or too large to support a program that proves to be less popular than expected. If supplies could not be ordered in advance, it is possible that a program such as youth baseball might begin without any baseballs, bats or protective equipment available.

Q. Where is the money kept?

A. Pursuant to both RSA 35-B:2 and RSA 41:29, the funds are public money, and must be kept with the municipal treasurer. Neither the recreation commission nor its employees should have a separate account of any type under their control, and there should be practices and procedures in place to assure that money collected from users for recreation purposes is immediately deposited with the treasurer. On the expense side, recreation officials work with the governing body, which is responsible under RSA 41:9 to assure that appropriate purchasing procedures are in place. This might involve a credit card for small items, or purchase orders for items used on a regular basis, or even competitive bidding for larger purchases.

Q. Does the treasurer need to open a separate checking account to hold the money?

A. No. The treasurer only needs to assure that the municipal accounting system will allow a report to be generated showing details of the deposit of revenues and the expenditures allocated to recreation programs that are operated by the municipality. The treasurer will be concerned that deposits are received promptly and that appropriate practices and procedures are in place to authorize payments for recreation program costs. This does not require a separate bank account.

Q. Who decides whether an amount to be paid should come from this fund, or from some other account in the municipal accounting system?

A. When the legislative body creates the revolving fund, it decides who makes these decisions. The language used in RSA 35-B:2 is, “…upon order of the recreation or park commission, or other board or body designated by the local legislative body at the time the fund is created.” For that reason, in some municipalities it is only the recreation commission that authorizes payment, while in others it is the recreation commission and the board of selectmen, or the town manager or city manager. Each municipality with a recreation revolving fund should keep a copy of the warrant article creating the fund easily accessible in order to answer this question.

Q. In our programs, we use volunteers as well as paid full- and part-time staff to both administer and deliver the services. Can we pay personnel-related costs from the revolving fund?

A.The language used in RSA 35-B:2 indicates that the fund may be used “…for the purposes of this chapter….” One of the powers granted under RSA 35-B:1 is the authority to “…employ an administrative officer and such other persons as it deems necessary to carry out the provisions of this chapter.” Therefore, it is lawful to pay personnel costs from the revolving fund. Be careful here, however, because the recreation commission itself consists of residents of the municipality who are appointed by the governing body to serve without pay, and the commission has only those powers delegated by the governing body under RSA 35-B:1. Thus, appointed recreation commission members cannot hire themselves to serve as paid staff, and the governing body will determine the personnel-related practices, procedures and policies that apply to recreation staff and volunteers. The recreation commission and the governing body will need to communicate and cooperate in order to appropriately manage persons who serve in these capacities in the recreation programs.

Q. Is it possible that amounts placed into the recreation revolving fund could be taken out and used for other public purposes?

A. During the year, the governing body does not have the authority to transfer sums in the revolving fund to other public purposes, because the funds are restricted to use for recreation purposes.

However, since the legislative body creates the fund, it also has the authority to rescind the fund. If that were to occur, the money in the fund would revert to the municipal general fund and be subject to a new appropriation by the legislative body, possibly to another purpose. The decision belongs to the legislative body.

Q. Why would a legislative body decide to take money from the recreation revolving fund?

A. Remember that the money placed into the fund is the amount paid by users to participate in recreation programs. Users normally expect that the amount they pay will be used to cover the variable costs of the program, such as supplies, and something extra to administer the program. If the fees charged are larger than needed to offer the service, the revolving fund balance can grow. With a revolving fund, voters expect there to be some balance in the account at all times, but not more than is needed to fund current programming. If they see a large balance in the revolving fund, that is an incentive to place the money to other uses in order to reduce current taxes or accomplish some purpose unrelated to recreation.

Some municipalities have allowed balances in the recreation revolving fund to grow, thinking that the balance will one day be used to fund a major purchase, such as a new field, or a new tennis court. That sort of saving for the future is better accomplished by a different financial tool, the capital reserve fund. Voters expect a capital reserve fund to build up to the amount needed to accomplish the purpose, and further expect that there will be no withdrawals until it is time to complete the intended project.

We advise municipalities to use the right financial tool to accomplish each purpose. Use the recreation revolving fund to accomplish recreation-related programming. If there is a major capital purchase needed in the future, save for that purpose using a capital reserve fund.

Q. Wow, this seems complicated; are you sure the recreation commission can’t have its own checkbook to pay for these things?

A. The statutes are very clear on the fact that the treasurer must hold public funds. This assures that public receipts and expenditures are open for review, and that all responsible parties are accountable for use of the funds. However, there is another reason, having to do with liability. Recreational activities often involve sports where there can be contact and a risk of injury. There are several statutes which protect the municipality, its employees and volunteers for a municipal program from personal liability for actions taken in good faith and within the scope of the duties they are asked to perform. If it could be argued that the injury occurred during an activity that is not a municipal program, some of those important protections might be lost, and personal liability could be a real risk for the individuals involved. Thus, it is important to observe the formalities that surround how these programs are created, offered and financed.

If you have additional questions regarding this type of account, you should consult your municipal finance officer or LGC Government Finance Advisor Barbara T. Reid. For questions about creating a recreational program that minimizes risk to participants and the municipality, you may wish to consult your risk management advisors or regular municipal attorneys.

Paul Sanderson is staff attorney with the New Hampshire Local Government Center's Legal Services and Government Affairs Department. For more information on this and other topics of interest to local officials, LGC’s legal services attorneys can be reached Monday through Friday from 8:30 a.m. to 4:30 p.m. by calling 800.852.3358, ext. 384.

Additional information regarding funds is available in the LGC’s publication Knowing the Territory: A Survey of Municipal Law for New Hampshire Local Officials and in the article, “Reserve Funds, Special Revenue Funds or Revolving Funds: Choosing the Right Tool for the Right Job” by Barbara T. Reid, published in the November/December 2005 isssue of New Hampshire Town and City magazine.