A governing body may increase its appropriations cap up to what percentage by passing a cost of living adjustment ordinance?

The correct answer reflects that a governing body is permitted to increase its appropriations cap by 3.5% by passing a cost of living adjustment ordinance. This percentage is significant as it aligns with adjustments often made to account for inflation and rising costs, ensuring that budgets remain effective in addressing current economic conditions. The allowance for a 3.5% increase specifically aids municipalities in maintaining the purchasing power of allocated funds, thus helping them to sustain public services and operational effectiveness.

This adjustment recognizes the challenge of maintaining a balanced budget while also accommodating for factors such as salary increases for public employees and rising costs of goods and services, which are essential for proper budgeting and financial management in municipal governance. Understanding this aspect is crucial for municipal officials and budget planners as they navigate fiscal responsibilities and community needs.