Public Budgeting in America Theory Research Proposal

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Debt #10

Principle #2

Interest #9

Sinking Fund #7

Pay-as-you-go #13

Mortgage bonds #15

Accounts payable #5

Unfunded pension liability #6

General obligation debt #8

Revenue debt #4

Special authority debt #17

Lease-backed debt #16

Traditional capital financing #1

Public-private capital financing #12

Creative capital financing #18

Financial engineering #20

Derivatives #11

Operating Budget #3

Capital Budget #14

Speculators #19

Question 2. There are several warning signs that a municipality is in financial trouble. One is unfunded pension obligations. If the municipality is not putting enough money into its pension fund, it may be having difficulty covering regular operating expenses. Likewise, if the municipality has a sinking fund that it is no longer contributing to, this could be a sign of distress. If the municipality's debt rating is reduced, this is another sign. It means that the municipality's balance sheet is believed to have deteriorated.

There are other signs of distress as well. Certain types of debt issues signal distress more than others. For example, revenue bonds may indicate that the government needs to issue debt that is not subordinated, in other words nobody will lend them money without having first dibs on the municipality's revenue streams.

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Likewise, if the municipality is using accounts payable as a form of debt for the raising of capital, this indicates that they have run out of other capital-raising options. Thus, they are forced to stretch their payables in order to conserve their cash flow.

Question 3. Capital budgets represent the major, long-term expenditures for the government. These are typically for large projects, often for infrastructure, and are not generally for ongoing expenses. Major capital projects could include new roads, major sewer upgrades or any such substantial one-time expense. Each budget session sees a portion of the budget funds placed into a capital account to be used on such major projects. Many capital projects, upon completion, will then have ongoing operating expenses. Many capital projects are depreciated, rather than expensed.

The operating budget is used for expenses relating to the ongoing, everyday business of government. These expenditures tend to be ongoing, such as staff costs, pension costs, real estate costs, supplies and utilities. The operating budget also includes ongoing expenses such as maintaining a current fleet of vehicles. Even though an.....

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