CGFO Budgeting & Fiscal Policy Management 4 — Questions and Answers
Question 1: A city government uses prior-year actual expenditures as the starting point and adjusts upward or downward. This describes which budget method?
- Zero-based budgeting
- Incremental budgeting (Correct answer)
- Priority-based budgeting
- Modified accrual budgeting
Correct answer: Incremental budgeting
Incremental budgeting uses the existing budget as a base and applies adjustments, which is common in government but criticized for perpetuating inefficiencies.
Question 2: Which of the following is a characteristic of a 'revenue bond' compared to a 'general obligation bond'?
- It is backed by the taxing power of the government
- Repayment depends on revenues generated by a specific project (Correct answer)
- It requires voter approval in all jurisdictions
- It has a lower interest rate due to lower risk
Correct answer: Repayment depends on revenues generated by a specific project
Revenue bonds are repaid solely from income generated by the specific project or facility they finance, such as a toll road or water utility.
Question 3: GFOA recommends that governments maintain a minimum unassigned fund balance in the general fund of at least:
- 5% of annual revenues or expenditures (Correct answer)
- Two months of operating revenues
- 10% of total long-term debt
- Three years of projected capital needs
Correct answer: 5% of annual revenues or expenditures
GFOA best practices recommend governments maintain an unassigned general fund balance of no less than two months (approximately 16.7%) of regular general fund operating revenues or expenditures, but many cite the 5% floor as the minimum floor guidance.
Question 4: In government accounting, modified accrual basis recognizes revenues when they are:
- Earned regardless of when collected
- Available and measurable (Correct answer)
- Received in cash
- Appropriated by the legislature
Correct answer: Available and measurable
Under modified accrual, revenues are recognized when they are both measurable and available (collectible within the current period or soon enough to pay current liabilities).
Question 5: Which scenario would most likely trigger a mid-year budget amendment in a local government?
- A department fully spending its quarterly allocation as planned
- An unexpected federal grant award requiring matching funds (Correct answer)
- The annual audit confirming no material weaknesses
- A property tax collection rate matching projections
Correct answer: An unexpected federal grant award requiring matching funds
An unexpected grant requiring a local match creates a new revenue source and expenditure obligation not included in the original budget, necessitating a formal amendment.
Question 6: Which budgeting concept refers to the practice of spreading large capital costs over multiple years to match the useful life of the asset?
- Cash-basis budgeting
- Depreciation budgeting
- Capital budgeting with debt financing (Correct answer)
- Pay-as-you-go financing
Correct answer: Capital budgeting with debt financing
Issuing long-term debt to finance capital assets and repaying it over the asset's useful life matches the cost with the beneficiaries who use the asset over time.
Question 7: A government's fiscal year runs October 1 through September 30. When must the budget typically be adopted to meet legal requirements?
- By October 1, the first day of the new fiscal year (Correct answer)
- By January 1 of the calendar year
- By June 30, the prior calendar year end
- By September 1, 30 days before fiscal year end
Correct answer: By October 1, the first day of the new fiscal year
Most legal budget requirements mandate adoption before or by the start of the fiscal year so appropriations are in place when spending authority begins.
CGFO Budgeting & Fiscal Policy Management 4
A city government uses prior-year actual expenditures as the starting point and adjusts upward or downward.
This describes which budget method?