CPRE Finance and Budgeting 5 — Questions and Answers
Question 1: A parks department is considering issuing revenue bonds to finance a new golf course. Which condition is most critical for this financing method to be viable?
- The department must have an investment-grade general obligation bond rating
- The projected revenues from the golf course must be sufficient to cover debt service (Correct answer)
- The state legislature must approve a tax levy increase to back the bonds
- The agency must establish a sinking fund equal to the full bond principal
Correct answer: The projected revenues from the golf course must be sufficient to cover debt service
Revenue bonds are repaid from the revenues generated by the specific facility or project they finance, so the facility must produce adequate cash flow to service the debt.
Question 2: Under GASB Statement No. 34, parks and recreation agencies must report infrastructure assets using the:
- Modified accrual basis in the government-wide statements
- Depreciation method or the modified approach in government-wide statements (Correct answer)
- Cash basis in both fund and government-wide statements
- Cost method only, with no allowance for accumulated depreciation
Correct answer: Depreciation method or the modified approach in government-wide statements
GASB 34 requires infrastructure assets to be reported at historical cost and either depreciated or accounted for using the modified approach in government-wide financial statements.
Question 3: A recreation director must reduce the department's operating budget by 8% mid-year due to a revenue shortfall. Which strategy best preserves core program delivery?
- Apply uniform across-the-board cuts to all program lines
- Prioritize cuts to administrative overhead and non-essential programs first (Correct answer)
- Suspend all capital maintenance expenditures for the remainder of the year
- Borrow from the agency's long-term reserve fund to avoid any cuts
Correct answer: Prioritize cuts to administrative overhead and non-essential programs first
Targeting administrative and non-essential costs first protects direct service delivery, which is the agency's primary mission.
Question 4: Which of the following is a characteristic of a Tax Increment Financing (TIF) district that a parks director should understand when seeking park improvement funds?
- TIF revenues can only be used for environmental remediation projects
- TIF captures incremental property tax growth within a defined district for reinvestment (Correct answer)
- TIF requires annual voter approval to continue collecting tax increments
- TIF funds are administered directly by the state parks department
Correct answer: TIF captures incremental property tax growth within a defined district for reinvestment
TIF districts capture the increase in property tax revenues above a baseline level and redirect those funds to improvements within the district, which can include parks.
Question 5: A parks agency's auditors identify a material weakness in internal controls related to cash handling at recreation centers. The MOST appropriate immediate corrective action is:
- Terminate all employees who processed cash transactions in the prior year
- Implement segregation of duties so no single employee controls all steps of cash receipting (Correct answer)
- Transition all facility revenues to a fund balance reserve pending the next audit
- Eliminate all cash payment options and require electronic payments only
Correct answer: Implement segregation of duties so no single employee controls all steps of cash receipting
Segregation of duties—ensuring different staff collect, record, and reconcile cash—is the standard control to prevent and detect errors or fraud in cash handling.
Question 6: A park agency calculates its cost recovery ratio for an aquatics program at 65%. This means:
- The program generates a 65% return on the agency's initial capital investment
- User fee revenues cover 65% of the program's total direct and indirect costs (Correct answer)
- 65% of program participants pay full price while 35% receive subsidized rates
- The program requires 65% more funding than originally budgeted
Correct answer: User fee revenues cover 65% of the program's total direct and indirect costs
A 65% cost recovery ratio means that program revenues offset 65 cents of every dollar of program cost, with the remaining 35% subsidized by tax support.
Question 7: A recreation agency is preparing its Comprehensive Annual Financial Report (CAFR) and must reconcile the governmental funds balance sheet to the government-wide Statement of Net Position. A primary reconciling item is:
- Adjusting all revenues from accrual to cash basis reporting
- Adding capital assets net of accumulated depreciation, which are not reported in governmental funds (Correct answer)
- Removing all interfund transfers that were recorded in the fund statements
- Converting long-term debt from face value to present value
Correct answer: Adding capital assets net of accumulated depreciation, which are not reported in governmental funds
Governmental fund statements use modified accrual and exclude long-term assets; the reconciliation adds capital assets (net of depreciation) to convert to the full accrual government-wide basis.
CPRE Finance and Budgeting 5
A parks department is considering issuing revenue bonds to finance a new golf course.
Which condition is most critical for this financing method to be viable?