Ch. 3

Question 1

What is the primary source of revenue for governments?

Answer 1

Taxes

Question 2

What is resident property tax based on?

Answer 2

The budget, not actual spending

Question 3

How does a government prepare a budget?

Answer 3

Expenses - Nontax Revenue = Taxes

Based on spending needs.

Back into it, start with costs and go through capital needs.

Question 4

What are budget contingency fees?

Answer 4

Budgeting for the unknown

Question 5

What is an appropriation?

Answer 5

An authorized legal spending limit

Question 6

Where does money come from when dealing with unexpected repairs?

Answer 6

Reserves - prior earnings put away

Eliminating other costs

Work - increased revenue

Question 7

What is an encumbrance?

Answer 7

Intend to spend

Estimated expenditure

Question 8

How to determine what is available to spend?

Answer 8

Appropriation - Expenditure - Encumbrance

Question 9

What is an assessed valuation rate?

Answer 9

Do the budget, calculate the money the government needs

Based on relative value of real estate

Question 10

What are grieved taxes?

Answer 10

An individual believes the government has overvalued their property and argues to prove it is worth less

Question 11

Why are governments fundamentally different than businesses?

Answer 11

A business has seasonality (busy/slow times) that affects cash flow

Governments collect 90% of revenue within the first month of the year - property taxes (assessed the first day of the year)

Question 12

What is the formal definition of a budget?

Answer 12

A formal estimate of the resources that an organization plans to spend for specified purposes during a specified time period (typically, a fiscal year) and the proposed means of acquiring these resources

Question 13

What is the purpose of a budget?

Answer 13

To set forth the activities the organization plans to undertake and how the organization intends to finance them

Question 14

When is a budget considered balanced?

Answer 14

When revenues and amounts made available from previously accumulated fund balances equal the appropriations made to authorize expenditures

***using savings does not necessarily mean balanced

Question 15

What does a capital budget focus on?

Answer 15

The acquisition of long-lived resources such as buildings, roads, and equipment.

Capital outlay

Needs to be incorporated into accrual budgets and way beyond at least 10 years.

Question 16

What is the purpose of the budgetary fund balance account?

Answer 16

To keep track of actual revenues against budgetary estimates and actual expenditures against appropriations

Credit means a surplus was budgeted.

Debit means a deficit was budgeted.

Question 17

What are five typical sources of revenue received by the local government?

Answer 17

1) Taxes
2) Charges for services
3) Fines and forfeits
4) Fees for licenses and permits
5) Interest on investments
6) Intergovernmental revenues (grants from other governments

Question 18

What is the purpose of encumbrance accounting?

Answer 18

To protect an appropriation from being overspent

Question 19

Why are investors willing to loan money to the government at low interest rates?

Answer 19

Low risk and interest earned is tax free.

Question 20

What things does a good budget consider?

Answer 20

Recurring expenditures

Recurring revenues

One-time costs/revenues

Question 21

What are nontax revenues?

Answer 21

Income earned from: interest rates, parking permits, beach fees, recreation fees, etc.

***Non residents are charged more - let other people pay our taxes

Question 22

Object of Expenditure Approach

Answer 22

Also known as the traditional or line item approach.

Prepared to show, as line items, every category of expenditure to be made during the year, described in terms of the physical good or service to be obtained by the government.

***Simplest approach.

Question 23

Zero-Based Budgeting Apporach

Answer 23

Each year’s budget starts from scratch, or zero, with each activity justified as if it were new.