Author: Financial Management Resource Bureau
In Massachusetts, all revenue is considered general fund revenue that must be appropriated by the legislative body for any lawful purpose unless another law provides for alternate treatment (M.G.L. c. 44, §53). Revolving funds are an example of an alternative revenue source. These receipts are segregated from the general fund, earmarked for expenditure without appropriation for specified purposes by statute to support the activity, program or service that generated the revenue, and spent from the actual collections on hand.
Certain revolving funds must be authorized at the local level as required by statute. Each statute describes the activity, local acceptance, legislative or other required actions, allowable and prohibited expenses, spending ceiling, and whether interest is credited to the revolving or general fund.
There are school revolving funds:
- Adult Education (M.G.L. c. 71, §71E)
- Community Schools (M.G.L. c 71, §71C)
- Culinary Arts (M.G.L. c 71, §17A)
- Non-resident tuition (M.G.L. c. 71 §71F)
- School Activity Agency (M.G.L. c. 71 §47)
- School Bus Advertising (c. 184 §197 Acts 2002)
- School Choice Tuition (M.G.L. c. 76 §12B(O))
- School Day Care (M.G.L. c. 71 §26C)
- School Lunch (c. 548 Acts 1948)
- School Rental (M.G.L. c. 40 §3)
- Student Activity Agency (M.G.L. c. 71 §47)
- Student Athletics and Activities (M.G.L. c. 71 §47)
- Use of School Property (M.G.L. c. 71, §71E)
- Vocational Education (M.G.L. c. 74, §14B)
And non-school revolving funds:
- Anniversary Celebration (M.G.L. c. 44 §53I)
- Arts Lottery Council Monies (M.G.L. c. 10 §58)
- Centennial Celebration (M.G.L. c. 40 §5H)
- Energy Revolving Loan (M.G.L. c. 53E¾)
- Expedited Permitting (M.G.L. c. 43D, §6(b))
- Law Enforcement Trust (M.G.L. Ch. 94C §47)
- Multi-community Yard Waste Program (c. 179 Acts 1993)
- Municipal Building/Property Rental (M.G.L. c. 40 §3) Municipal Rental (M.G.L. c. 40 §3)
- Outside Consultants (M.G.L. c. 44 §53G)
- Parks and Recreation Fund (M.G.L. c. 44 §53D)
- Performance Surety Deposits (M.G.L. c. 44 §53G½)
- Smart Growth Consultants (M.G.L. c. 40R §11(h))
- Special Detail (M.G.L. c. 44 §53C)
- Subdivision Plan Performance Bond Defaults (M.G.L. c. 41 §81U)
- Tax Title Collection (M.G.L. c. 60 §15B)
- Wetlands Protection Fund (M.G.L. c. 131 §40, c. 43 §218 Acts 1997, c. 194 §349 Acts 1998)
In addition, the legislature authorized departmental revolving funds (M.G.L. c. 44, §53E½, Bulletin (BUL) 2017-01B, Informational Guideline Release (IGR) 2021-23). Departmental revolving funds allow communities some flexibility in budgeting for self-supporting, nonobligatory programs and services that are seasonal or fluctuate with demand, which makes them difficult to budget for in the ordinary manner. Similar to other revolving funds, all fees, charges and other receipts received in connection with a departmental program or activity are applied directly, without further appropriation, to support that program or activity. The statute does not authorize dedicating only a portion of any fees, charges or receipts to a revolving fund.
Key features of the §53E½ departmental revolving fund are that each fund must be authorized by ordinance or by-law, and the legislative body must annually set the spending authority that is reported on the tax recap. The ordinance or by-law applies only to §53E½ departmental revolving funds. Each §53E½ fund must specifically identify the program or activity receipts to be credited to the revolving fund; recognize the board, department or officer authorized to spend from the fund, clearly specify the purposes for which monies in the revolving fund may be spent; and list any restriction, conditions and reporting requirements. In addition, a city or town must vote the limit on the total amount that may be expended from each departmental revolving fund on or before July 1 of each year. However, in any fiscal year, the limit on the amount that may be spent from a §53E½ revolving fund may be increased with the approval of the council and mayor in a city, or with the approval of the select board and finance committee in a town.
While intended to be accommodating, departmental revolving funds do have limitations:
- A revolving fund may not be established for:
- receipts of a municipal water or sewer department
- receipts of a municipal hospital
- receipts of a cable television access service or facility
- receipts of districts
- receipts reserved by law, or as authorized by law, for expenditure for a particular purpose.
- Generally, there is no departmental program or activity from revenues derived from:
- the sale or lease of property or assets
- governmental transactions (access to public records, tax collection)
- fundraisers (sale of goods, tickets, concessions, promotional items)
- taxes (excise/betterments)
- intergovernmental reimbursements
- regulatory exactions (mitigation or buy-out payments, infrastructure or impact fees or other exactions from property owners)
- with rare exception, fines or penalties
It is imperative that there is a direct connection or nexus between the revenues credited to the §53E½ departmental revolving fund and the program or activity. All contributions, donations, gifts and grants must be deposited into gift and grant funds and spent without appropriation (M.G.L. c. 44, § 53A or c. 71, § 37A) and therefore not combined with revolving funds under any circumstances. Other examples of revenues that cannot be lawfully placed in a §53E½ departmental revolving fund are net metering credits, community choice aggregation adder fees, school-based Medicaid reimbursements, intermunicipal agreement revenues, off-duty or special detail work’s administrative fee, and seed money to start a revolving fund.
Communities should review their departmental revolving funds to ensure they comply with the legal purpose and authorized use requirements of §53E½ and that an ordinance or by-law is properly in place. While the Attorney General’s Office reviews all bylaws, it generally directs towns to refer to DLS’ guidelines on revolving funds and to consult with town counsel to ensure that receipts designated for each departmental revolving fund are not already reserved under other funds or statutes. For general information about the varying types of revolving funds, DLS has two reference publications, Revolving Funds Chart-School Departments and Revolving Funds Chart-Non-School Department Program, a model bylaw/ordinance in BUL 2017-01B and procedures and requirements of departmental revolving funds in IGR 2021-23.
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| Date published: | August 13, 2026 |
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