Understanding enterprise funds: Why some government services work like businesses

Have you ever wondered why you must pay to take your trash to the dump, but your taxes cover services like the fire department and animal control? Both are government services, but they're funded in different ways. The reason has to do with something called enterprise funds. It can be a little confusing and is usually misunderstood.

An enterprise fund works sort of like a small business inside the government. Most government services, like schools or police, get their money from taxes. But enterprise funds make their own money by charging people who use their services. Things like water utilities, airports, parking lots, and public transportation are common examples of this.

Let's look at how a city's water department works as an example. When you turn on your faucet, you pay for the water you use through your monthly bill like an electric bill. That money goes into the water department's enterprise fund. The fund is used to cover all the costs of providing clean water for your home. This includes fixing and maintaining pipes, treating the water, paying workers, and planning for future updates.

But why do governments run some services like businesses and fund others with taxes? Fairness, predictability, and making sure the service can keep running.

Enterprise funds help make sure that people who use a service the most pay their fair share. For example, if you use more water than your neighbor, you’ll pay more for it through your water bill. This is different from services like fire protection, where it wouldn’t make sense to charge someone only after firefighters come to their house.

Another reason enterprise funds are used is that they provide a reliable source of money. Instead of competing with other departments for limited tax dollars every year, these services get their funding through user fees. This allows them to plan for long-term projects and keep the quality of the service consistent.

Enterprise funds help services be self-sufficient and sustainable. When people pay directly for what they use, they tend to use resources more responsibly. This helps protect important resources while making sure the service can cover its costs with no need for extra money from taxes.

Still, not all government services fit this model. Because they benefit everyone equally, we usually pay for essential services such as police, fire departments, and public schools through taxes. They are meant to be available to everyone regardless of the ability to pay at the time of need.

Departments change sometimes. The City of Houston recently amended their code to specify that Parks and Recreation become an enterprise fund. Voters rejected a ballot measure to fund parks through taxes, so the city council moved it to an enterprise fund.

It's important to understand how enterprise funds work because it affects how we can interact with these services. For example, if you think your water bill is too high, you can go to utility board meetings or talk to local government leaders to share your concerns. With enterprise funds, it's easier to see where your money is going and make sure the service providers are doing their job responsibly.

As communities deal with growing infrastructure needs and limited budgets, enterprise funds have become an important way to keep public services running and improving. They help governments manage some departments more efficiently while using tax dollars to make sure essential services stay available to everyone.

The next time you pay for that load of trash at the transfer station or park at a municipal park, remember that you're part of a system designed to keep these services working well and lasting for the future. While enterprise funds might not work for every service, they are a creative way to support the public services we depend on every day.

Christian M. Hartley is a 40-year Alaskan resident with over 25 years of public safety experience and public service. He runs a freelance business, Big Lake Writer, from home in Big Lake that he shares with his wife of 19 years and their three teenage sons.