Tools for accountability or politics? The USA’s state special revenue fund accounting and balances

This article applies the precautionary saving and political budget cycle theories to examine how states in the USA utilize special revenue fund (SRF) balances as mechanisms of fiscal accountability or political strategy. Drawing on panel data covering all 50 US states from 2005 to 2023, the analysis demonstrates that SRF balances are shaped by institutional reform, fiscal uncertainty, political budget cycles, and fiscal rules, though in ways that are not uniformly predictable. Rather than operating solely as political tools or instruments of fiscal discipline, SRFs emerge as hybrid mechanisms that help states navigate fiscal uncertainty, communicate policy priorities, and respond to institutional constraints. This study presents the first empirical analysis of the determinants of SRF balances in the USA, addressing a critical gap in the literature and contributing a novel fund-level perspective to the study of public financial management.Governments face growing pressure to maintain fiscal stability and accountability, especially amid today’s economic and political uncertainty. In the USA, state governments use special revenue fund (SRF) accounts to dedicate revenues for specific public services like healthcare, education and transportation. This article provides timely, evidence-based insights into how SRF balances are managed. It finds that the implementation of GASB Statement No. 54, revenue volatility, and gubernatorial elections influence the level of SRF balances. Findings further indicate that when budget stabilization funds are difficult to access, officials may redirect fiscal strategies to SRFs, using them as secondary savings tools. The study offers practical implications for policy-makers, budget officers, and public sector accountants and auditors seeking to strengthen accountability in public financial management by identifying the conditions under which SRF balances are accumulated and used.