American Institute of Certified Planners (AICP) Practice Exam

What is a characteristic of Pay-as-you-go Financing?

1. It involves financing future payments

2. It uses current funds to pay for projects

3. It relies on loans for capital improvements

4. It allows for deferred payments on projects

The correct answer is: It uses current funds to pay for projects

Pay-as-you-go financing is characterized by the use of current funds to pay for projects as they are developed, rather than incurring debt or relying on future revenues. This approach emphasizes financial responsibility and ensures that a community or organization does not accumulate debt, as all expenses are covered by existing funds available at the time the expenditures are made. This can be particularly advantageous for funding capital projects because it avoids interest payments and the risks associated with borrowing. By utilizing current funds, entities can effectively manage their budgets and planning without the complications of loans or deferred costs, which can lead to long-term financial obligations. This method is often seen in public financing, where municipalities fund infrastructure such as roads or parks directly from tax revenues or other immediate sources rather than through borrowing or issuing bonds.