CPWM Budget and Finance 5 — Questions and Answers
Question 1: A public works agency is developing a five-year Capital Improvement Plan (CIP). Which factor should receive the HIGHEST priority when ranking projects?
- Projects that are aesthetically appealing to residents
- Projects addressing critical safety, regulatory compliance, or infrastructure failure risks (Correct answer)
- Projects with the lowest construction cost
- Projects requested most recently by elected officials
Correct answer: Projects addressing critical safety, regulatory compliance, or infrastructure failure risks
Capital project prioritization should be driven by risk to public safety, legal/regulatory compliance requirements, and prevention of infrastructure failures.
Question 2: What is the purpose of a budget appropriation transfer?
- To increase the total budget authority for a department
- To move spending authority between line items or funds within an approved budget (Correct answer)
- To carry unspent funds forward to the next fiscal year
- To reappropriate lapsed grant funds
Correct answer: To move spending authority between line items or funds within an approved budget
An appropriation transfer reallocates spending authority between budget lines without increasing the overall budget total, providing flexibility to address changing needs.
Question 3: Which ratio measures a utility's ability to pay its annual debt service from operating revenues?
- Current ratio
- Quick ratio
- Debt service coverage ratio (Correct answer)
- Return on assets
Correct answer: Debt service coverage ratio
The debt service coverage ratio compares net operating revenues to annual debt service requirements, indicating the utility's capacity to meet bond obligations.
Question 4: Under generally accepted governmental auditing standards (GAGAS), a performance audit of a public works program primarily evaluates:
- Whether financial statements are free from material misstatement
- The economy, efficiency, and effectiveness of program operations (Correct answer)
- Compliance with tax code provisions
- The internal control structure of the finance department
Correct answer: The economy, efficiency, and effectiveness of program operations
Performance audits assess whether programs are achieving intended outcomes economically and efficiently, going beyond financial statement accuracy.
Question 5: A public works department is evaluating whether to contract out snow removal or perform it in-house. What type of analysis should guide this decision?
- Trend analysis
- Make-or-buy (insource vs. outsource) cost-benefit analysis (Correct answer)
- Break-even analysis only
- Bond feasibility study
Correct answer: Make-or-buy (insource vs. outsource) cost-benefit analysis
A make-or-buy analysis compares the full cost of in-house service delivery against contracting, including overhead, hidden costs, and service quality considerations.
Question 6: When a government's fiscal year ends and unspent appropriations lapse, what happens to those funds?
- They automatically carry forward to the new fiscal year for the same purpose
- They revert to the fund balance or general fund and are no longer available for the original purpose (Correct answer)
- They are transferred to the capital projects fund
- They are held in escrow for two years before lapsing
Correct answer: They revert to the fund balance or general fund and are no longer available for the original purpose
Unless a carryforward or encumbrance exception applies, lapsed appropriations revert to the fund balance at fiscal year end and must be re-appropriated to be spent.
Question 7: Which element is typically NOT included in a public works department's operating budget?
- Personnel services and benefits
- Supplies and materials
- Land acquisition for a new maintenance facility (Correct answer)
- Contractual services
Correct answer: Land acquisition for a new maintenance facility
Land acquisition is a capital expenditure funded through the capital budget or CIP, not the operating budget which covers recurring service delivery costs.
CPWM Budget and Finance 5
A public works agency is developing a five-year Capital Improvement Plan (CIP).
Which factor should receive the HIGHEST priority when ranking projects?