Special assessment debt is another type of debt that might be recorded in the capital projects fund. The reader may be wondering why the capital projects fund section is discussing mostly debt-related matters. To reiterate, governments generally finance capital projects with debt and there are a number of accounting
issues that address when that debt is actually recorded as a liability of the capital projects fund.

The capital projects fund typically accounts for capital projects financed with the proceeds of special assessment debt. More often than not, special assessment projects are capital in nature and are designed to enhance the utility, accessibility, or aesthetic value of the affected properties. The projects may also provide
improvements or additions to a government’s capital assets, including infrastructure. Some of the more common types of capital special assessments include streets, sidewalks, parking facilities, and curbs and gutters. For example, the government will build sidewalks in a neighborhood that previously had no sidewalks.

The costs of a capital improvement special assessment project are usually greater than the amount the affected property owners can or are willing to pay in one year. To finance the project, the affected property owners effectively mortgage their property by allowing the government to attach a lien on their property so that the property owners can pay their pro rata share of the improvement costs in installments. To actually obtain funds for the project, the government usually issues long-term debt. Ordinarily, the assessed property owners pay the assessments in installments, which are timed to be due based on the principal and interest payments that must be made for the debt. The assessed property owners may also elect to pay for the assessment immediately, or at any time thereafter, but prior to the installment due dates. When the assessed property owners satisfy their obligations, the government removes the liens from the respective properties.

Taken From : Governmental Accounting Made Easy

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