CME CME Municipal Finance & Contract Administration 1 — Questions and Answers
Question 1: What is the primary purpose of a municipal capital improvement program (CIP)?
- Track daily operating expenses
- Plan and schedule major infrastructure investments over a multi-year period with identified funding sources (Correct answer)
- Manage employee payroll
- Set utility rate structures
Correct answer: Plan and schedule major infrastructure investments over a multi-year period with identified funding sources
A CIP is a multi-year (typically 5–6 year) financial planning document that identifies, prioritizes, and schedules capital projects with their funding sources.
Question 2: What is a general obligation (GO) bond in municipal finance?
- A bond secured only by project revenue streams
- A debt instrument backed by the full faith, credit, and taxing power of the issuing municipality (Correct answer)
- A federal infrastructure grant
- A short-term line of credit for operations
Correct answer: A debt instrument backed by the full faith, credit, and taxing power of the issuing municipality
GO bonds are backed by the municipality's unrestricted taxing authority and full faith and credit, making them lower-risk and typically carrying lower interest rates than revenue bonds.
Question 3: What distinguishes a revenue bond from a general obligation bond?
- Revenue bonds are backed by general taxes
- Revenue bonds are repaid solely from revenues generated by the specific project or utility they finance (Correct answer)
- Revenue bonds require voter approval in all states
- Revenue bonds are issued by the federal government
Correct answer: Revenue bonds are repaid solely from revenues generated by the specific project or utility they finance
Revenue bonds, such as water/sewer or toll road bonds, are secured only by the revenues from the funded project, not by general taxpayer funds.
Question 4: What is the Davis-Bacon Act's requirement for federally funded municipal construction projects?
- Requires all workers to be union members
- Requires payment of locally prevailing wages and fringe benefits to workers on covered projects (Correct answer)
- Mandates use of domestic steel and materials
- Requires competitive bidding for all federal contracts
Correct answer: Requires payment of locally prevailing wages and fringe benefits to workers on covered projects
The Davis-Bacon Act requires contractors and subcontractors on federally funded construction contracts over $2,000 to pay workers the locally prevailing wage and fringe benefit rates.
Question 5: What is the purpose of a bid bond in public construction procurement?
- Guarantee completion of the project
- Provide financial assurance that a bidder will enter into the contract and furnish required performance bonds if awarded (Correct answer)
- Ensure warranty work after project completion
- Cover material cost escalation
Correct answer: Provide financial assurance that a bidder will enter into the contract and furnish required performance bonds if awarded
A bid bond protects the municipality by ensuring that a bidder won't withdraw after winning the bid; if they do, the bond covers the difference in cost to award to the next bidder.
Question 6: Under most state competitive bidding laws for public construction, what must a municipality award the contract based on?
- The most technically qualified firm
- The lowest responsive and responsible bidder (Correct answer)
- The firm with the best past relationship with the municipality
- A weighted score of price and qualifications
Correct answer: The lowest responsive and responsible bidder
Public construction bid laws typically require award to the lowest responsive (meeting specs) and responsible (capable) bidder to ensure taxpayer value and prevent favoritism.
CME CME Municipal Finance & Contract Administration 1
What is the primary purpose of a municipal capital improvement program (CIP)?