Certified Government Financial Manager (CGFM) 2026 – 400 Free Practice Questions to Pass the Exam

The correct funding source typically used for capital budgets is intergovernmental grants. Capital budgets are designed for long-term investments in infrastructure and capital assets, such as buildings, roads, and equipment. Intergovernmental grants are specifically allocated for these types of projects, often provided by higher levels of government to support the development and maintenance of public infrastructure. These grants are beneficial as they can significantly alleviate the financial burden on local governments and are specifically earmarked for capital expenditures.

In contrast, sales tax revenue, while a common source of funding for operational budgets and even some capital projects, is generally less reliable for targeted capital expenditures due to its fluctuating nature based on economic conditions. Operating funds are intended for day-to-day expenses rather than for long-term investments, and asset liquidation involves selling off assets to generate revenue, which tends to be a less stable or predictable source of funding for capital initiatives. Thus, intergovernmental grants stand out as the most appropriate option for capital budgets, ensuring that funds are dedicated to substantial infrastructure projects that benefit public services.