What is a capital budget and how does it differ from the operating budget?

• A. A multi-year plan for capital investments with funding sources; separate from the annual operating budget.
• B. A yearly plan for employee benefits.
• C. A plan for day-to-day expenses.
• D. A plan for debt issuance only.

Answer: (A)

A capital budget is a multi-year plan for major capital investments—like new buildings, roads, or long-lived equipment—and it identifies the funding sources and financing needed to complete those projects. It is kept separate from the annual operating budget, which covers the routine, day-to-day costs of running government programs, such as salaries, utilities, and supplies, on a year-to-year basis. The key differences are time horizon, purpose, and funding approach: capital budgeting looks ahead several years, evaluates project feasibility and long-term financial impact (including debt service and depreciation), and aligns with a capital improvement plan; operating budgeting focuses on current services and recurring costs within the year. The other options describe operating functions or funding methods rather than a plan for long-term physical investments, so this description best identifies a capital budget.