Budget Administration & Financial Oversight Flashcards

A municipality receives an unexpected $2 million settlement from a lawsuit. Under sound fiscal policy, how should a one-time revenue source like this be used?

Answer: Use it for one-time capital expenditures or to replenish reserves

Fiscal best practice requires matching one-time revenues with one-time expenditures to avoid creating structural budget imbalances in future years.

What is 'Tax Increment Financing' (TIF) and its primary fiscal risk for a municipality?

Answer: A method of issuing bonds backed by increased assessed values in a development district, which can divert tax revenues from overlapping taxing bodies

TIF captures the increment in property tax revenues from a development district to repay bonds, which can reduce revenues available to schools and other overlapping governments.

Under the concept of 'structural balance,' a municipality's budget is considered structurally balanced when:

Answer: Recurring revenues are sufficient to cover recurring expenditures without reliance on one-time sources

Structural balance means ongoing programs are funded by ongoing revenues, ensuring long-term fiscal sustainability without dependence on windfalls or reserves.

A city clerk is responsible for publishing the notice of a budget hearing. Which element is most critical to include in the published notice to meet legal requirements?

Answer: The time, date, location, and summary of the proposed budget or tax rate

Legal notice requirements typically mandate publication of the hearing time, date, location, and sufficient budget or tax rate information for the public to meaningfully participate.

Which GFOA best practice recommends that municipalities prepare a multi-year financial forecast as part of the budget process?

Answer: To identify long-term fiscal trends and the sustainability of current service levels

GFOA recommends multi-year forecasting to help governing bodies understand future fiscal impacts of current decisions and identify emerging imbalances early.

When reviewing a proposed budget for potential legal issues, a city clerk should verify that appropriations do NOT exceed:

Answer: The legally authorized appropriation limit or revenue estimates

Appropriations exceeding legally authorized limits or available revenues are ultra vires and can expose the municipality to legal liability and audit findings.

A municipality's general fund has a total fund balance of $3 million, of which $500,000 is nonspendable, $800,000 is restricted, and $400,000 is committed. The remaining $1.3 million is split between assigned ($300,000) and unassigned ($1 million). For reserve policy purposes, which component is the most liquid and available for appropriation?

Answer: Unassigned fund balance

Unassigned fund balance has no external restrictions or formal constraints and represents the most available resources for future appropriation or emergency use.