Glossary

Question 1

A separate financial reporting unit for budgeting, management,, or accounting purposes. All budgetary transactions, whether revenue or expenditure, are recorded in accounts. Several related accounts may be grouped together in a fund. A list of the accounts into which money can be put or taken is called the chart of accounts.

Answer 1

Account

Question 2

The generally accepted accounting principles (GAAP) promulgated by the Government Accounting Standards Board that guide the recording and reporting of financial info by state and local governments. The standards establish such guidelines as when transactions are recorded (accrual, modified accrual, or cash basis), the types and purposes of funds, and the content and organization of the annual financial report. At the federal level, accounting standards are developed by the Federal Accounting Standards Board.

Answer 2

Accounting Standards

Question 3

Refers to when a financial transaction is recorded. Accrual is a method of accounting in which revenues are recorded when measurable and earned, and expenses are recognized when a good or service is used.

Answer 3

Accrual Basis

Question 4

In the sale of a new issue of municipal bonds, the dollar amount, based on the stated rate or rates of interest, which has accrued on the bonds from the dated date, or other stated date, up to but not to include the date of delivery. When a bond is purchased in the secondary market, the dollar amount, based upon the stated rate of interest, which has accrued on the bond from the most recent interest payment date, up to but not including the date of settlement. Accrued interest is paid to the seller by the purchaser and is usually calculated on a 360-day-year basis.

Answer 4

Accrued Interest

Question 5

Departmental efforts that contribute toward the accomplishment of specific, identified program objectives.

Answer 5

Activity

Question 6

Refers to legal test found in resolution or ordinance securing bonds; governs ability to issue additional bonds having the same lien on pledged revenues. Usually expressed as a ratio in which historic earnings meet certain levels of future debt service coverage.

Answer 6

Additional Bonds Test

Question 7

A direct tax based “according to value” of property. Countries and school districts and municipalities usually are, and special tax districts may be, authorized by law to levy ad valorem taxes on property other then intangible personal property. Local governmental bodies with taxing power may issue bonds or short-term certificates payable from ad valorem taxation.

Answer 7

Ad Valorem Tax

Question 8

The refinancing of outstanding bonds by issuance of a new issue of bonds prior to the date on which the outstanding bonds become due to are callable. Accordingly, for a period of time, both the issue being refunded and the refunding issue are outstanding. Bonds are “escrowed to maturity” when the proceeds of the sufficient to pay, when due, the principal of and interest on the issue being refunded. Bonds are considered “pre-refunded” when the refunding bond proceeds are escrowed only until the call day of the refunded issue. The Internal Revenue Code restricts the yield which may be earned on investment of proceeds of refunding bonds. There are two principal methods of advanced refunding.

Answer 8

Advanced Refunding

Question 9

A method of advanced refunding in which the size of the issue is a principal amount which, together with interest earning thereon, will net sufficient funds to pay the principal of and interest on the outstanding obligations to be refunded. Proceeds of the refunding bonds are invested in federal securities, with principal and interest being used to redeem or retire the prior issue.

Answer 9

Net Cash Refunding or Defeasance

Question 10

A method of advance refunding in which the size of the issue is a principal amount which alone is sufficient to pay the principal of and interest on the outstanding obligations to be refunded. Such an issue consists of two series of bonds: the refunding bonds, and “special obligations bonds”. The proceeds of the issue are invested and the interest earnings are used to pay the principal of and interest on the special obligations bonds. Thus, even though a larger total annual debt service requirements may be reduced because the special obligations bonds are secured by the earnings on the refunding issue.

Answer 10

Full Cash or Gross Refunding or Defeasance

Question 11

A colloquial term for securities issued by one the federal agencies.

Answer 11

Agencies

Question 12

The gradual release of funds to departments or units within government that prevents the premature depletion or their appropriation.

Answer 12

Allotment

Question 13

A wholly-owned subsidiary of AMBAC, INC., which in turn is a consolidated subsidiary of Citibank, NA, with additional investment by Xerox Financial Services, Inc., and AMBAC management. AMBAC offers noncancelable insurance contracts by which it agrees to pay a bond holder all, or any part, of a scheduled bond principal and interest payment as it becomes due and payable, in the event the issuer is unable to pay.

Answer 13

AMBAC Indemnity Corporation

Question 14

The process of paying the principal amount of an issue of bonds by the periodic payments either directly to bond holders or to a sinking fund for the benefit of bond holders. Payments are usually calculated to include interest in additional to partial payment of the original principal amount.

Answer 14

Amortization

Question 15

A table showing the gradual repaying of an amount of indebtedness, such as a mortgage or bond, over a period of time.

Answer 15

Amortization Schedule

Question 16

The release of funds on a quarterly or project basis by the budget office to prevent spending a year’s allocation in the first or second quarter and then coming back for more money to finish out the year. Apportionment of budgets is more likely found at the state and federal levels.

Answer 16

Apportionment

Question 17

Legal authorization to make expenditures or enter into obligations for specific purposes. Appropriations are normally passed by the council every year. An appropriation may be approved for operating expenditures and another for capital items, or one appropriation may be passed for both types of expenditures.

Answer 17

Appropriation

Question 18

Generally, transactions by which securities are bough and sold in different markets at the same time for the sake of profit arising from a difference in prices in the two markets. With respect to the insurance of municipal bonds, arbitrage usually refers to the difference between the interest paid on the bonds issued and the interest earned by investing the bond proceeds in other securities. Arbitrage profits are permitted on bond proceeds for various temporary periods after issuance of municipal bonds. Internal Revenue Service regulations govern arbitrage of municipal bond proceeds.

Answer 18

Arbitrage

Question 19

An annual determination of the just or fair market value of a property by the county property appraiser for purposes of ad valorem taxation. If a tax on property is imposed by virtue of the value of its use, the assed valuation is it’s classified use value.

Answer 19

Assessed Valuation

Question 20

The value of property for the purposes of levying property taxes. In some states the assessed value is the same as the market value less exemptions, while in others it is some fraction of market value.

Answer 20

Assessed Value

Question 21

The report prepared by an auditor covering the audit or investigation of an entity’s financial position for a given period of time. As a general rule, the report should include: a) a statement of the scope of the audit, b) explanatory comments concerning exceptions for generally accepted auditing standards, c) opinions, d) explanatory comments concerning verification procedures, e) financial statements and schedules, and f) statistical tables, supplementary comments, and recommendations. The auditor’s signature follows item c) or d).

Answer 21

Audit Report

Question 22

Financial statement which has been examined by an auditor and upon which the auditor has expressed or disclaimed an opinion.

Answer 22

Audited Statement

Question 23

An examination, usually by a CPA firm who is retained by council, that reports on the accuracy of the annual financial reports prepared by the chief financial officer. In a financial and compliance audit, the auditor seeks to establish whether the financial report “fairly presents” what actually transpired during the accounting period. The audit also determines whether management complied with all applicable laws and policies in carrying out its fiduciary responsibilities.

Answer 23

Auditing

Question 24

A unit or agency of government established to perform a specialized function, usually financed by service charges, fees, or tolls, although it may have taxing powers. This unit may depend upon other units for its creation, funding, and operation.

Answer 24

Authority

Question 25

With respect to issued municipal bonds, the document adopted by the issuer which implements its power to issue bonds. The actual granting of such power may be found in the enabling provisions of the constitution, statues, charters, and ordinances applicable to the issuer. Adoption this document by the issuer’s governing body is a condition precedent to valuation of the proposed bonds.

Answer 25

Authorizing Resolution or Ordinance

Question 26

Money remaining from prior years that is not committed for other purposes and can be allocated in the upcoming budget.

Answer 26

Available Fund Balance

Question 27

The number of years equal to the total bond years divided by the total number of bonds (1 bond = $1,000 regardless of actual denomination). Reflects how rapidly the principal of an issue is expected to be paid and is important to underwriters in calculating bids for new issues of municipal securities.

Answer 27

Average Life or Average Maturity

Question 28

Current revenues and equal current expenditures. The legal requirements may be set by the state or local government.

Answer 28

Balanced Budget

Question 29

A later maturity within an issue of bonds which contains a disproportionately large percentage of the principal amount of the original issue. Provision is often made for payment by making periodic payments to a sinking fund for the mandatory redemption of specified amounts prior to their stated maturity.

Answer 29

Balloon Maturity

Question 30

A principal payment to satisfy a balloon maturity, which is much larger than prior or future payments.

Answer 30

Balloon Payment

Question 31

Bond Anticipation Notes

Answer 31

BANs

Question 32

Equal to 1/100 of one percent. Of interest rates increase from 8.25% to 8.50%, the difference is refereed to as a 25 ______ increase.

Answer 32

Basis Point

Question 33

Bond which is presumed to be owned by the person who holds it. The Tax Equity and Fiscal Responsibility Act of 1982 requires the insurance of municipal bonds in fully registered form, with minor exceptions.

Answer 33

Bearer Bond

Question 34

Users or those who benefit from a service pay for at least a portion of the cost of providing that service. Examples include taxes on gas and motor fuels that are earmarked for road improvements, or service charges for water and waste water based on the amount of service used.

Answer 34

Benefits Received Principal