There is a specific GASB Statement (No. 6, “Accounting and Reporting for Special Assessments,” GASBS 6) that discusses the accounting treatment for special assessments and their related debt. Prior to GASBS 6, there was a special fund type that accounted for special assessments, so the good news is that there is one less type of fund to learn about. The big issue with how special assessments are recorded is whether the government is obligated in any manner for the debt.

• If the government is obligated in some manner to assume the payment of the debt related to the special assessment in the event of default by the property owners, all transactions related to the capital improvements related to the special assessment are accounted for in the same manner as any other capital improvement and financing of the government. Transactions of the construction phase of the project should be reported in the capital projects fund (assuming one is being used), meaning the proceeds from the bonds would be recorded as an “other financing source” and spending on the project would be recorded as expenditures. However, one other set of accounting entries is required. At the time of the levy of the special assessment, a receivable for special assessments should be recorded in the capital projects fund. Because this receivable is not a current financial resource, a deferred revenue amount should also be recorded. As the payments are collected from the property owners, the receivable amount is reduced. As the receivable is reduced, the deferred revenue account is also reduced with a corresponding amount of revenue being recognized.
• If the government is not obligated in any manner for the debt related to a special assessment, the construction phase is treated like other capital projects, meaning that expenditures are recognized in the capital projects fund. The source of the funds in the capital projects fund, however, should be identified by a description other than “bond proceeds,” for example, “contributions from property owners.” Although in both cases the capital projects fund receives the proceeds from debt, in the case where the government is not obligated in any manner for the debt, the accounting reflects the fact that conceptually the property owners are receiving the debt proceeds and then turning them over to the government. The government records the receipt of these funds in the capital projects fund as a contribution from the property owners. In addition, the government will not use a debt service fund (discussed in the next section) to record the collection of special assessments and their payment to bondholders, because the debt is not a debt of the government.

Taken From : Governmental Accounting Made Easy

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