Deck 13: Capital Assets: Planning and Budgeting, Analysis, and Management

Question 1

Which level of government in the United States does not employ a formal capital budgeting process?

A) Local
B) County
C) State
D) Federal

Answer 1

D

Question 2

In the public sector, the purchase or construction of a long-lasting physical asset or facility is called a(n):

A) capital project.
B) capital investment.
C) economic resource.
D) capital resource.
E) All of these are correct.

Answer 2

E

Question 3

Which of the following is a typical problem that sometimes occurs in classifying an expenditure as capital or current?

A) What is a large expenditure to a small government may be a small expenditure to a large government.
B) Many items purchased by governments may be used for many years, but are not costly enough to make the accounting expense of including them in a capital budget worthwhile.
C) Sometimes an expenditure to repair a capital asset may replace the capital asset damaged, such as in a storm, but may not extend the life of that asset beyond what it would have lasted before the damage occurred.
D) All of these are correct.
E) None of these is correct.

Answer 3

D

Question 4

What is the first step in a typical public sector capital investment planning process?

A) Identifying possible financial resources
B) Developing program objectives
C) Inventorying existing capital assets
D) Looking toward the future

Question 5

Which of the following is not an example of a capital project?

A) Rehabilitation of existing facilities
B) Replacement of existing facilities
C) Expansion of existing facilities
D) Subleasing of existing facilities

Question 6

The financial resources necessary to implement a capital investment program at the local level rarely are financed through:

A) the federal government.
B) tax increases.
C) borrowing.
D) fees and property assessments.

Question 7

Approximately what percentage of the capital investment portion of the U.S. federal budget goes toward Department of Defense acquisitions?

A) Greater than 50%
B) Between 40% and 50%
C) About one-third (33%)
D) Only a small percentage of federal capital investments are for defense acquisitions.

Question 8

Approximately what percentage of federal physical capital outlays are grants to state and local governments?

A) 55%
B) 44%
C) 31%
D) 22%

Question 9

In an economic benefit analysis, what do we call the potential indirect spillover or secondary costs and benefits?

A) External validities
B) Exigencies
C) Expenditures
D) Externalities

Question 10

What is the term for imputing the benefit of a proposed government project or service when no market price exists?

A) Internal validity
B) Shadow pricing
C) Opportunity cost
D) Contingent valuation

Question 11

How an expenditure is financed (using current revenues vs. some form of longer-term financing) is one of the reasons state and local governments, as opposed to the federal government, separate capital expenditures from current expenditures in the budget process.

Question 12

Governments, and other organizations, that have a comprehensive multiyear capital investment plan typically also have a corresponding capital budget.

Question 13

Many governmental entities ignore the distinction between capital and current expenditures.

Question 14

The main difference between cost-benefit and cost-effectiveness analysis is in differences in how costs are measured.

Question 15

For most state and local governments, the application of complex analytical tools such as cost-benefit analyses or rate-of-return analyses play a significant role in the selection of capital projects.

Question 16

The operating and maintenance costs of a new facility are lower in the early years of operation.

Question 17

The main difference between the federal budget preparation of capital investment requests and state governments with capital budgets is that there is no overall federal capital investment plan or capital budget.

Question 18

Capital budget decisions are less political than other budget decisions.

Question 19

Considering the return on investment (ROI), public sector investments may often be justified on the basis of nonfinancial returns if the financial return on the investment is less than an equivalent privately provided option.

Question 20

Various studies have estimated that the combined infrastructure deficit in public facilities in the United States, like water systems, schools, and highways, is several trillion dollars.

Question 21

What are the three types of public sector capital investments?

Question 22

In general, what are the two criteria that distinguish current expenditures from capital expenditures?

Question 23

What is the difference between a capital budget and a capital improvement program?

Question 24

When ranking capital project priorities at the state and local level, what is most often the first concern?

Question 25

What are the main reasons state and local governments formally segregate capital and current expenditures into two distinct budgets?

Question 26

How are capital investments handled in the U.S. federal budget?

Question 27

What is the principal difference between an economic analysis and a financial analysis?

Question 28

Discuss the importance at the state and local levels of government of an annual examination of capital investments such as infrastructure in the context of a thorough capital investment planning process. Include in the discussion the differences between how state and local capital investments are financed and how that impacts on voters' reactions to the capital budget.

Question 29

Discuss the concerns many have over the consequences of deterioration in the condition of the U.S.'s physical infrastructure base, including highways, bridges, and water and sewer systems. Include in the discussion the relative roles of the federal government versus state and local governments in financing infrastructure over the last 30 or more years and the federal role in direct and indirect infrastructure financing.