A government, government agency or nonprofit group, such as a historical society, museum or university, maintains a general fund to cover all financial activities. Monies from this fund can be placed into designated funds for specific spending. These designated funds channel monies from the general fund to places where it is needed. Once these designated funds are used up, more funds are allocated from the general fund to replenish these funds.
The general fund pays for all operating costs and other administrative expenditures.
It is this fund that must be balanced when a balanced budget is the topic of discussion by government officials, administrators or economic forecasters.
This glorified checking account of governments, and like groups, must maintain a balance in order to pay the daily expenses of their operations. When this balance is not maintained, funds are borrowed from funds designated for social security or other funds.
If these designated funds become too depleted to safely borrow from, governments or nonprofit groups find other funding solutions. For governments, these solutions may entail borrowing from other countries such as China or petroleum-rich countries in the Mid-East.
Without a proper balance, daily operations are curtailed and appropriations are held up. Projects are put on hold and layoffs occur. For nonprofit entities such as universities, these layoffs can affect the local economy, and unless some solution is arrived at, bankruptcy could be the next step.
Maintaining the general fund is a priority for all governments and government agencies as well as nonprofit entities.