A Legislator’s Guide to Creating Cash Funds

by Ed DeCecco

“How do I love thee [cash funds]? Let me count the ways.” Elizabeth Barrett Browning’s Sonnet 43

Ms. Browning may not have written her sonnet about the Colorado General Assembly’s affection for cash funds, but if she’d seen how many cash funds exist in the Colorado Revised Statutes, she might have been tempted to do so.

While I’m no poet, I can count. So let me count the ways that the Colorado General Assembly creates the cash funds that it loves and, along the way, include a brief description and my thoughts on each.

One. Cash funds created for fee revenue.

Sometimes a program or particular service will be funded with a fee that is deposited into a cash fund. For example, the fees charged to enter a state park are deposited in the parks and outdoor recreation cash fund, and that money is appropriated to the Division of Parks and Wildlife in the Department of Natural Resources for state park operations.

This is an instance when a cash fund is critical. If there was no cash fund, then the fee revenue would be deposited into the general fund and used to pay for general government services, instead of the particular program for which it was created. Not only would the program lack funding—oops!—but the fee would lose an essential characteristic that distinguishes it from a tax. Presuming that it was created without prior voter approval, that could raise a constitutional issue. (Hint: The provision rhymes with “neighbor.”)

Two. Cash funds created for gifts, grants, or donations.

As an alternative to creating a fee, the general assembly may empower a department to accept and expend gifts, grants, or donations to be used for a particular purpose, and that money will be deposited into a cash fund. These gifts for a designated purpose are a type of money called custodial funds. Custodial funds are not money that a person earns while incarcerated, but rather, as the Colorado Supreme Court explained in Colorado General Assembly v. Lamm, they are “funds not generated by tax revenues which are given to the state for particular purposes and of which the state is a custodian or trustee to carry out the purposes for which the sums have been provided.”

So, if an individual gave the state $1,000,000 for Ed. funding, that money cannot be deposited into the general fund and used to pay for the general operations of the state. Instead the department is required to give it to me or other men named Ed, or, perhaps, use it for the less-fun, but worthier purpose of funding a particular education program. In either case, the money will be separately accounted for, and the department will only be permitted to spend it for designated purposes. Also, unlike state money, custodial funds are not subject to appropriation and are typically excluded from state fiscal year spending under TABOR. With all of these considerations, there is no reason to create a cash fund just for your gifts, grants, and donations, other than to reiterate a clever program name.

Three. Cash funds created to spend general fund revenue.

Many times a new program will be created without specifying a particular source of funding. In these instances, the likely place from which the money will be paid is the general fund. But instead of appropriating the money directly from the general fund, sometimes the money is transferred or appropriated to a cash fund and then appropriated to the department for the intended purpose. Maybe there is a reason for this funding two-step, such as setting aside money from the current year to be used in future years, but often I can’t tell what it is.

Unfortunately, this mechanism obscures how state money is being used (and gives our accountants headaches). If the money is transferred to the cash fund, the money will appear in the annual appropriations bill under the cash funds appropriation column, even though it is actually general fund revenue. Or there may need to be two appropriations in the annual appropriations bill: an appropriation from the general fund to a cash fund and then an appropriation of reappropriated funds from the cash fund to grant the department the authority to spend the money. Given that you’ve probably glazed over just reading my description of how this works, you would likely agree that it would be much more straightforward and transparent to directly appropriate the money from the general fund and skip the cash fund in this instance.

Four. Cash funds created to spend fees; gifts, grants, or donations; and general fund revenue.

Often a program will be primarily funded by fees that are deposited into a fund, but the cash fund will also include gifts, grants, or donations and any other money that the general assembly may appropriate or transfer to the fund. I can’t decide if this is a result of bill drafters being thorough or if it indicates the optimistic nature of legislators. Either way, I’m not sure how often the public or the joint budget committee exercises its power to supplement the fee revenue. A cash fund is still appropriate in this case because of the fee revenue. Keep in mind, though, that gifts, grants, or donations are not subject to appropriation, and, therefore, the authority to spend the fee revenue should differ from the gifts, grants, or donations.

Five. Cash funds created for taxes.

While taxes are generally designed to raise revenues to defray the general expenses of government, it has always been somewhat fashionable to treat our state taxes like fees by crediting the tax revenue to a cash fund and then limiting the uses. This may be done to comply with the initiated or referred measure (for example, the tobacco tax cash fund was created to facilitate the constitutionally mandated distribution of the tobacco taxes created by Amendment 35) or because the underlying activity being taxed seems to demand that the derivative revenue be used accordingly (for example, a portion of severance taxes are deposited in the local government severance tax fund). In these instances, which are relatively infrequent, a cash fund may be necessary for administrative reasons.

So, there you have it, five ways the general assembly creates cash funds. And while it is always fun for us bill drafters to create one, perhaps they could be created less often when they are not legally necessary. To help remind you of this, I’d like to conclude this article with a little poem. (While I said I’m not a poet, I’m not afraid to compose a doggerel verse or two.)

Roses are red, violets are blue, cash funds are awesome, but maybe we should have less of ’em.