CGFO Revenue Administration 4 — Questions and Answers
Question 1: A government finance officer discovers that the city's hotel tax ordinance has not been updated in 15 years and the rate is below comparable jurisdictions. This finding belongs to which type of revenue review?
- Debt capacity analysis
- Revenue elasticity study
- Revenue rate benchmark study (Correct answer)
- Fund balance policy review
Correct answer: Revenue rate benchmark study
A revenue rate benchmark study compares current rates to those of peer governments to identify potential revenue enhancement opportunities.
Question 2: Under GASB standards, fines and forfeitures are classified as which type of nonexchange revenue?
- Derived tax revenue
- Imposed nonexchange revenue (Correct answer)
- Government-mandated nonexchange transaction
- Voluntary nonexchange transaction
Correct answer: Imposed nonexchange revenue
Fines and forfeitures are imposed nonexchange revenues because they result from government-imposed assessments rather than exchange transactions.
Question 3: A government's sales tax revenue drops significantly during a recession. This demonstrates that sales tax has high:
- Stability
- Revenue elasticity (Correct answer)
- Administrative efficiency
- Equity
Correct answer: Revenue elasticity
High revenue elasticity means a tax's yield fluctuates significantly with changes in economic activity, as sales tax collections closely follow consumer spending.
Question 4: Which principle requires that user fees for enterprise services should not exceed the reasonable cost of providing the service?
- The benefits principle
- The cost recovery principle (Correct answer)
- The ability-to-pay principle
- The fiscal equivalence principle
Correct answer: The cost recovery principle
The cost recovery principle holds that fees for government services should be limited to recovering the actual cost of service provision.
Question 5: A state government mandates that a county provide a specific service but provides partial funding. How is the revenue from the state classified?
- Derived tax revenue
- Imposed nonexchange revenue
- Government-mandated nonexchange transaction (Correct answer)
- Voluntary nonexchange transaction
Correct answer: Government-mandated nonexchange transaction
Government-mandated nonexchange transactions occur when a higher-level government requires a lower-level government to perform a service and provides resources for it.
Question 6: When building a multi-year revenue forecast, which external economic indicator is most relevant to projecting local sales tax revenue?
- Federal funds rate
- Consumer Price Index (CPI) and retail sales growth (Correct answer)
- Municipal bond yield spreads
- Unemployment insurance claims only
Correct answer: Consumer Price Index (CPI) and retail sales growth
Sales tax revenue tracks consumer spending, making CPI inflation data and retail sales growth the most directly relevant external indicators.
Question 7: A government finance officer is establishing a revenue contingency reserve. What is the primary purpose of this reserve?
- To fund capital projects in future years
- To stabilize service delivery when actual revenues fall short of projections (Correct answer)
- To reduce outstanding long-term debt
- To accumulate funds for future employee benefits
Correct answer: To stabilize service delivery when actual revenues fall short of projections
Revenue contingency reserves (rainy day funds) are set aside specifically to maintain service levels during periods when revenues underperform budget projections.
CGFO Revenue Administration 4
A government finance officer discovers that the city's hotel tax ordinance has not been updated in 15 years and the rate is below comparable jurisdictions.
This finding belongs to which type of revenue review?