CGFO Budgeting & Fiscal Policy Management 3 — Questions and Answers
Question 1: A county government collects a hotel occupancy tax whose proceeds can only be used for tourism promotion. Which fund type is most appropriate for these resources?
- General Fund
- Capital Projects Fund
- Special Revenue Fund (Correct answer)
- Debt Service Fund
Correct answer: Special Revenue Fund
Special revenue funds account for proceeds of specific revenue sources that are legally restricted to expenditure for specified purposes.
Question 2: The 'structural deficit' concept in public finance refers to a deficit that:
- Occurs only during economic recessions
- Exists even when the economy is at full employment (Correct answer)
- Results from capital infrastructure spending
- Is caused by temporary emergency appropriations
Correct answer: Exists even when the economy is at full employment
A structural deficit persists even at full employment because baseline government spending systematically exceeds revenues, unlike a cyclical deficit tied to economic downturns.
Question 3: Which budget format organizes expenditures by the goals and objectives the government aims to achieve rather than by line items or departments?
- Line-item budget
- Program budget
- Performance budget (Correct answer)
- Object-of-expenditure budget
Correct answer: Performance budget
Performance budgets link spending to measurable outcomes and objectives, allowing legislators to evaluate effectiveness rather than just inputs.
Question 4: Under GASB 54, which of the following is a proper classification for fund balance in governmental funds?
- Reserved and unreserved
- Restricted and committed (Correct answer)
- Designated and undesignated
- Encumbered and unencumbered
Correct answer: Restricted and committed
GASB 54 established a fund balance hierarchy including nonspendable, restricted, committed, assigned, and unassigned — not the old reserved/unreserved terminology.
Question 5: A government adopts a budget where expenditures intentionally equal revenues. This is an example of:
- A surplus budget
- A balanced budget mandate (Correct answer)
- Expansionary fiscal policy
- A cash-basis budget
Correct answer: A balanced budget mandate
Many state and local governments operate under balanced budget requirements or mandates that prohibit spending in excess of anticipated revenues.
Question 6: What does the term 'appropriation' mean in the context of government budgeting?
- The process of auditing government spending
- Legal authority granted by a legislative body to make expenditures (Correct answer)
- The transfer of surplus funds to reserves
- The projection of future revenues
Correct answer: Legal authority granted by a legislative body to make expenditures
An appropriation is a legislative act that authorizes a government entity to incur obligations and make payments from the treasury for specified purposes.
Question 7: Which of the following best describes 'debt service' in a government budget?
- Interest earned on government investments
- Principal and interest payments on outstanding government debt (Correct answer)
- Administrative costs of managing the finance department
- Pension contributions for retired employees
Correct answer: Principal and interest payments on outstanding government debt
Debt service encompasses all scheduled payments of principal and interest that a government must make to retire its outstanding debt obligations.
CGFO Budgeting & Fiscal Policy Management 3
A county government collects a hotel occupancy tax whose proceeds can only be used for tourism promotion.
Which fund type is most appropriate for these resources?