American Institute of Certified Planners (AICP) Practice Exam

Which of the following best describes a capital budget?

1. It outlines daily operating expenses.

2. It includes long-term purchases like buildings or major equipment.

3. It focuses on short-term financial goals.

4. It assesses community needs annually.

The correct answer is: It includes long-term purchases like buildings or major equipment.

A capital budget is specifically focused on the acquisition, improvement, or maintenance of long-term assets. This typically includes significant expenditures such as the purchase of buildings, infrastructure projects, and major pieces of equipment. The rationale behind a capital budget is that these investments are substantial in cost and have long-term implications for an organization or municipality's financial health. By distinguishing between capital expenses and operating expenses, a capital budget allows planners and decision-makers to better allocate resources for long-term growth and sustainability. This contrasts with a regular operating budget, which addresses day-to-day operational costs and short-term financial needs. The focus on long-term purchases underscores the importance of strategic financial planning in supporting ongoing service delivery and community development.