ESTABLISHING FUNDS - 7450

(Revised: 04/2020)

State funds can be created in one of three ways:

1. By Statute: A bill passed by the State Legislature and signed into law may create a fund for a specific purpose or various purposes. The legislation will specify the purpose of the fund, the source of revenue, any specific restrictions, the appropriation authority, and a repeal date (if applicable).
2. By Ballot Initiative: A ballot initiative approved by California voters at a general election may create a fund to carry out specific initiative(s) or program(s) that benefit the public. The measure will specify the purpose of the fund, the source of revenue, any specific restrictions, and a repeal date (if applicable).
3. Administratively (Government Code section 13306 (a)): Finance, with the concurrence of the Controller, may create funds used to manage and account for the financial activities and resources of the state through its administrative process. Typical circumstances under which Finance may create funds administratively include the following:

• When a bill signed into law established a program and identified revenue source for funding the program, but does not include a language specifically creating the fund to account for the activities of the established program, and there is no existing fund that can be used for the purpose of the program.
• When a fund is created by statute to carry out the activities of a program, which includes distinct subprograms required to be tracked separately, and the law does not include a language creating the subaccounts for tracking the activities of the distinct subprograms.
• When Finance determines, or a state agency/department requests that it will be more appropriate to separately allocate and track funds to various agencies/departments to ensure accountability and for reconciliation purposes using separate accounts under the main fund.

Note: Although Finance may create a fund through the administrative process, Finance does not have appropriation authority. All appropriations must be authorized by the Legislature.

Number of Funds and the Process to Establish Funds

Pursuant to Government Code section 13306 (a), the general policy is to minimize the number of state funds and establish and maintain only those funds required for sound financial administration. An agency/department with a need for a new fund that is not already created by law must submit a request to their Department of Finance budget analyst with the information listed below. Finance will review and process approved requests for new funds in accordance with Government Code section 13306 (a), and update the Uniform Codes Manual and the Manual of State Funds.

1. Authorization/justification for the new fund
2. Identify subfunds (with justification), if applicable
3. Proposed fund title
4. Proposed administering organization
5. Specific statutory reference or legislation (with analysis, if available)
6. Purpose of the fund (nature of expenditures)
7. Source of revenue
8. Proposed period of fund availability
9. Appropriation status (annual, one-time, continuous, etc.)
10. Disposition of any balance upon abolishment of fund

Use of Subaccounts or Subfunds to Track Lower Level Activities

Subaccounts or subfunds may be established to track lower-level fund or subprogram activities.

Subaccounts:

• Subaccounts are separate four-digit funds under the hierarchy of existing funds.
• Subaccounts may be used to track the activities of subprograms separately and may have a fund condition statement.
• A state agency/department that needs a subaccount must contact Finance to request one under an existing fund (if not created by law).

Subfunds:

• Subfunds may be created in a four-digit fund. A subfund number consists of the four-digit main fund number and three-digit distinguishing subfund number.
• A state agency/department that needs subfunds must contact the State Controller’s Office to request their establishment. All bond funds and special deposit funds are automatically established with subfunds.

Note: The terms used in this SAM section may be used differently in legislation. The general terms and definitions are intended to facilitate communication and share information with the Manual of State Fund users.