Foundational Terms

Question 1

Basis of Accounting

Answer 1

Method for tracking revenues and expense; most common are cash basis and modified accrual.

Question 2

Bond Insurance

Answer 2

Contract that guarantees the owners of a bond will receive interest payments in the issuer defaults.

Question 3

Business Improvement District

Answer 3

Geographic area where property owners agree o pay additional taxes to fund parking structures, street improvements, and other public projects to improve local business conditions.

Question 4

Capital Project

Answer 4

A project that will produce an asset with a useful life of more than one to two years; most common are roads, bridges, water treatment facilities and other infrastructure.

Question 5

Captial Budget

Answer 5

A government’s plan to fund capital projects; the capital budget is usually separate from the operating budget.

Question 6

Conduit Financing

Answer 6

Financing method where a government issues debt on behalf of a nonprofit or for-profit entity; common in economic development, affordable housing and industrial development.

Question 7

Cost Function

Answer 7

Relationship between the total cost to provide a service and the number of units provided

Question 8

Credit Rating/ Bond Rating

Answer 8

Grade that informs investors of the likelihood a bond issuer will default, ‘AAA’ or ‘Aaa’ ratings imply virtually no chance of default.

Question 9

Debt Capacity

Answer 9

Amount of debt a government can repay over time without changing current service levels.

Question 10

Defined Benefit

Answer 10

Pension arrangement where payments to retirees are pre-determined and fixed.

Question 11

Defined Contribution

Answer 11

Pension arrangement where payments to retierees depend on the value of their retirement savings.

Question 12

Direct Cost

Answer 12

Factors that contribute exclusively to the total cost of one service; for example, a police detective’s salary is a direct cost for crime investigation services.

Question 13

Discount Rate

Answer 13

A number applied to future cash flows to express them in today’s dollars; in pensions, future required benefit payments are discounted to identify today’s required contribution.

Question 14

Fiduciary

Answer 14

A legal obligation to act on behalf of someone else; policymakers have a fiduciary duty to safeguard public money.

Question 15

Fiduciary Fund

Answer 15

Fund containing resources a government holds and disburses for another entity; examples include trust funds for unclaimed property or taxes collected for another unit of government.

Question 16

Financial Resources Basis

Answer 16

Alternate term for modified accrual basis of accounting; emphasizes that modified accrual basis reflects a government’s near-term financial resource flows.

Question 17

Full Cost

Answer 17

Cost of a service that includes both direct and indirect costs to produce that service.

Question 18

Fixed Cost

Answer 18

Cost that does not depend on the volume of service provided; examples include salaries, insurance, debt service, etc.

Question 19

Fund Balance

Answer 19

Difference between assets liabilities in a governmental fund; reveals the accumulated effect of a government’s past general fund surpluses and deficits.

Question 20

General Obligation Bond (GO Bond)

Answer 20

Municipal bond backed by a government’s “full faith and credit;” local and state government obligation bonds are typically backed by property and income tax, respectively.

Question 21

Indirect Cost

Answer 21

Cost that is not directly accountable to an individual service; for example, the electricty necessary to run a copier machine is an indirect cost.

Question 22

Lease Revenue Bond

Answer 22

Financing method where a government or nonprofit issues bonds to acquire a capital facility, leases that facility to another government, then repays the bonds with lease payments.

Question 23

Marginal Cost

Answer 23

Cost to produce the next unit of a service; marginal cost usually decreases as the volume of service increases.

Question 24

Net Position

Answer 24

Difference between assets and liabilities in a government fund; often mentioned as an indicator of government fiscal health; most commonly discussed is general fund balance.

Question 25

Non-Tax Revenue

Answer 25

Difference between assets and liabilities for all governmental activities or business-type activities; reveals key components of a government’s long term financial condition.

Question 26

Profitability

Answer 26

When revenues exceed expenses; for governents, annual increases in net assets are the most common indicator of profitability.

Question 27

Property Tax

Answer 27

Tax on the value of real estate; most local government levy property taxes to fund public safety, parks, and other basic public services.

Question 28

Proprietary Fund

Answer 28

Accounting treatment for government business-type activities.

Question 29

Qualified Audit Opinion

Answer 29

The result of a financial audit where the auditor determines the government’s financial statements fairly represent its actual fiancial position.

Question 30

Rainy Day Fund

Answer 30

Savings intended to minimize the effect of a recessiono n government spending; most states and municipalities “spend down” their rainy day funds when revenues are less than expected.

Question 31

Rebudgeting

Answer 31

Changes to budgeted revenues and spending during the fiscal year; most rebudgeting happens at mid year.

Question 32

Revenue Bond

Answer 32

Municipal bond backed by specific revenue streams related to the purposes of the borrowing; for example, most sewer revenue bonds are repaid with sewer use charges.

Question 33

Solvency

Answer 33

A government’s capacity to generate the financial resources needed to cover its long-term obligations; a government without this capacity is “insolvent”

Question 34

Underwriter

Answer 34

In a municipal bond sale, the financial institution that purchases the bonds from government.

Question 35

Variable Cost

Answer 35

Cost that varies directly with the volume of the service provided; examples include mileage and commodities.

Question 36

Other Post-Employment Benefits (OPEB)

Answer 36

OPEB is similar to a defined benefit pension in that retirees earn a benefit that is known when an employee retires. The benefit is not a pension, but rather access to health insurance at a pre-determined price.

1. ) Most state and local govs don’t set aside funds for this purpose.
2. ) Unlike pensions, OPEBs are typically not guaranteed or protected by state law.

Question 37

What are the three main factors that an employee’s pension benefit is based on?

Answer 37

1. ) Final Average Salary (FAS) over the final thre to five years before retirement.
2. ) Years of service.
3. ) A percent of FAS attributable to each year.

Question 38

What are some of the common factors that a credit rating agency reviews in assigning a grade?

Answer 38

1. ) Stable Revenue Streams
2. ) Demographics
3. ) Financial Management & Governance

Question 39

What are the four kinds of Municipal Bonds?

Answer 39

1. ) General Obligation
2. ) Essential Revenue
3. ) Non-Essential Revenue
4. ) Lease Reveneue

Question 40

What happens in a public-private partnership (PPP)?

Answer 40

In a public-private partnership (PPP or P3) an outside investor finances and builds a project on behalf of the government.