CGFO Revenue Administration 5 — Questions and Answers
Question 1: A government's property tax levy is $10 million, but the tax roll shows $500 million in assessed value. The effective tax rate is:
- 5%
- 2% (Correct answer)
- 0.5%
- 0.02%
Correct answer: 2%
The tax rate = levy ÷ assessed value = $10M ÷ $500M = 0.02 = 2%, expressing the levy per dollar of assessed value.
Question 2: Which revenue administration practice most directly reduces the risk of delinquent tax collections?
- Lowering tax rates annually
- Implementing timely billing, penalty accrual, and lien processes (Correct answer)
- Switching to a cash-basis accounting system
- Eliminating senior citizen exemptions
Correct answer: Implementing timely billing, penalty accrual, and lien processes
Prompt billing cycles, automatic penalty accruals, and tax lien placement create strong incentives for timely payment and enforce collection legally.
Question 3: A city levies a tax increment financing (TIF) district. The incremental property tax revenue generated above the base year assessment is pledged to:
- The general fund for unrestricted use
- Finance infrastructure improvements within the TIF district (Correct answer)
- Reduce outstanding general obligation bonds
- Provide tax relief to homeowners
Correct answer: Finance infrastructure improvements within the TIF district
TIF districts capture the property tax growth above a frozen base assessment and use those incremental revenues to fund development within the designated area.
Question 4: Under GASB No. 34, which financial statement presents property tax revenue for governmental activities at the government-wide level?
- Statement of net position
- Statement of activities (Correct answer)
- Statement of revenues, expenditures, and changes in fund balance
- Statement of cash flows
Correct answer: Statement of activities
The statement of activities reports revenues and expenses of governmental activities using full accrual at the government-wide level.
Question 5: A government finance officer is conducting a revenue diversification analysis. Which outcome best indicates a well-diversified revenue portfolio?
- Reliance on a single large taxpayer for 80% of property tax
- Multiple revenue sources with no single source exceeding 30% of total revenue (Correct answer)
- Maximizing federal grant funding to 60% of total revenue
- Eliminating all fee-based revenues to simplify administration
Correct answer: Multiple revenue sources with no single source exceeding 30% of total revenue
Revenue diversification minimizes fiscal vulnerability; best practice guidelines generally suggest no single revenue source should dominate the portfolio.
Question 6: Which document formally authorizes a local government to impose and collect a specific tax or fee?
- The comprehensive annual financial report
- An enabling ordinance or statute (Correct answer)
- The budget resolution
- The audit management letter
Correct answer: An enabling ordinance or statute
Taxes and fees require legal authority through an enabling ordinance (local) or statute (state/federal) before a government can legally levy and collect them.
Question 7: A government receives a $2 million endowment gift where only investment earnings may be spent. How should the $2 million principal be reported?
- As unrestricted net position
- As restricted net position — nonexpendable (Correct answer)
- As deferred revenue until earnings are generated
- As a general fund revenue in the year received
Correct answer: As restricted net position — nonexpendable
Permanent endowment principal is reported as restricted nonexpendable net position because the corpus must be maintained in perpetuity.
CGFO Revenue Administration 5
A government's property tax levy is $10 million, but the tax roll shows $500 million in assessed value.
The effective tax rate is: