NJ CMFO Exam Revision Guide: Key Topic Questions & Answers
This document is designed to help candidates prepare for the NJ CMFO exam by
focusing on the most likely topics and question formats. Mastery of these concepts is
critical for success.
Section 1: New Jersey Local Budget Law (N.J.S.A. 40A:4)
1. What is the single most important date in the New Jersey municipal budget
calendar, and why?
Answer: March 14th. This is the statutory deadline for the introduction (introduction
and approval) of the budget by the Governing Body. Missing this date can lead to
significant penalties from the State, including the potential loss of State Aid.
2. Define the term "CAPS" in the context of a NJ municipal budget. What are the
major exceptions to these caps?
Answer: CAPS refer to the legal limitations on the annual increase in the
"Appropriations" and "Tax Levy" a municipality can adopt from one year to the next.
o Appropriations Cap: Generally limited to 2.5% over the previous year's final
appropriations.
o Tax Levy Cap: Generally limited to 2.0% over the previous year's adjusted tax levy.
o Major Exceptions (Cap Bankables):
1. Capital Expenditures: The amount approved for capital projects.
2. Debt Service: Payments for principal and interest on authorized debt.
3. Pension Contributions: Increases in the amount required by the state pension system.
4. Health Benefits: Increases in the cost of health benefits for employees.
5. Emergency Appropriations: Appropriations approved for a declared emergency.
6. Unfunded State Mandates: Costs of programs mandated by the state without funding.
3. What is the purpose of a "CAP Bank," and how is it created?
, Answer: A CAP Bank allows a municipality to "bank" any unused portion of its 2.5%
appropriations cap (up to 3.5% in total) for use over the next three budget years. It is
created by a formal resolution adopted by the Governing Body before the introduction of
the budget. This provides flexibility for unforeseen expenses or larger projects in future
years without exceeding the legal limits.
4. What is the difference between an "Emergency Appropriation" and a "Special
Emergency Appropriation"?
Answer:
o Emergency Appropriation: Covers an immediate, unforeseen need. It requires a 2/3
vote of the Governing Body and is funded from surplus or, if surplus is unavailable, from
the next year's budget. It is subject to the Director of DLGS's review.
o Special Emergency Appropriation: Used for a "war, disaster, or extraordinary
emergency." It requires a 2/3 vote and the approval of the Local Finance Board. It is
typically funded by the issuance of "Special Emergency Notes," which can have a
maturity of up to 10 years.
5. Describe the "Surplus" account in a NJ municipal budget. What are the
minimum and maximum amounts allowed?
Answer: Surplus (or "Fund Balance - Unassigned") is the accumulated excess of
revenues over expenditures from previous years. It is a critical source of operating
funds and revenue in the budget.
o Maximum: Generally limited to no more than 12.5% of the current year's budget
appropriations. Any amount over this must be used to reduce the tax levy.
o Minimum: While there is no statutory minimum, the DLGS strongly recommends
maintaining a minimum of 3-5% of appropriations for cash flow and unforeseen
emergencies. A municipality that depletes its surplus is considered fiscally stressed.
This document is designed to help candidates prepare for the NJ CMFO exam by
focusing on the most likely topics and question formats. Mastery of these concepts is
critical for success.
Section 1: New Jersey Local Budget Law (N.J.S.A. 40A:4)
1. What is the single most important date in the New Jersey municipal budget
calendar, and why?
Answer: March 14th. This is the statutory deadline for the introduction (introduction
and approval) of the budget by the Governing Body. Missing this date can lead to
significant penalties from the State, including the potential loss of State Aid.
2. Define the term "CAPS" in the context of a NJ municipal budget. What are the
major exceptions to these caps?
Answer: CAPS refer to the legal limitations on the annual increase in the
"Appropriations" and "Tax Levy" a municipality can adopt from one year to the next.
o Appropriations Cap: Generally limited to 2.5% over the previous year's final
appropriations.
o Tax Levy Cap: Generally limited to 2.0% over the previous year's adjusted tax levy.
o Major Exceptions (Cap Bankables):
1. Capital Expenditures: The amount approved for capital projects.
2. Debt Service: Payments for principal and interest on authorized debt.
3. Pension Contributions: Increases in the amount required by the state pension system.
4. Health Benefits: Increases in the cost of health benefits for employees.
5. Emergency Appropriations: Appropriations approved for a declared emergency.
6. Unfunded State Mandates: Costs of programs mandated by the state without funding.
3. What is the purpose of a "CAP Bank," and how is it created?
, Answer: A CAP Bank allows a municipality to "bank" any unused portion of its 2.5%
appropriations cap (up to 3.5% in total) for use over the next three budget years. It is
created by a formal resolution adopted by the Governing Body before the introduction of
the budget. This provides flexibility for unforeseen expenses or larger projects in future
years without exceeding the legal limits.
4. What is the difference between an "Emergency Appropriation" and a "Special
Emergency Appropriation"?
Answer:
o Emergency Appropriation: Covers an immediate, unforeseen need. It requires a 2/3
vote of the Governing Body and is funded from surplus or, if surplus is unavailable, from
the next year's budget. It is subject to the Director of DLGS's review.
o Special Emergency Appropriation: Used for a "war, disaster, or extraordinary
emergency." It requires a 2/3 vote and the approval of the Local Finance Board. It is
typically funded by the issuance of "Special Emergency Notes," which can have a
maturity of up to 10 years.
5. Describe the "Surplus" account in a NJ municipal budget. What are the
minimum and maximum amounts allowed?
Answer: Surplus (or "Fund Balance - Unassigned") is the accumulated excess of
revenues over expenditures from previous years. It is a critical source of operating
funds and revenue in the budget.
o Maximum: Generally limited to no more than 12.5% of the current year's budget
appropriations. Any amount over this must be used to reduce the tax levy.
o Minimum: While there is no statutory minimum, the DLGS strongly recommends
maintaining a minimum of 3-5% of appropriations for cash flow and unforeseen
emergencies. A municipality that depletes its surplus is considered fiscally stressed.
