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INTERNAL SERVICE FUNDS Internal Service Funds account for the financing of goods or services provided by a department to other departments on a cost-reimbursement basis. Three examples of this are the Employee Benefit Fund, the Repair and Replacement Fund and the Self Insurance Fund. These funds not only account for current year expenditures but also long term liabilities of the City. These liabilities may not result in actual expenditures in the short term, but will result in future expenditures for the future replacement of equipment or the payment in the future of employee retirement, medical benefits and unused vacation. In accordance with the City's adopted financial policies and the City's General Plan, the City recognizes costs as they accrue, and sets money aside to fund the future expenditures, rather than allowing these costs to accumulate and become a future burden. Employee Benefit Fund The Employee Benefit Fund (EBF) is used to account for employee benefit costs. The departments' budgets are charged for benefit expenses as a percent of salary, and the dollars then flow to the EBF, where the actual costs are recorded. For 2011/12FY, revenues and expenditures were over and under budget by $4.6 million as shown in Table 10. This was a clerical error that should have been caught and adjusted at Midyear. The error occurred as a result of employees paying a portion of the PERS EPMC which previous to the 2011/12FY had been paid by the City. The reduction in the Fund Balance is equal to the amount of the outstanding Side Fund Loan paid off in July 2011 ($6.9 million). The Retiree Medical Fund advanced the monies to pay off the Side Fund Loan with PERS for the Police Officers Group. Annually the Police Budget is charged for payback of this loan. The original loan was $7.8 million. The entire loan will be repaid in approximately 8 years; 2018/19FY. Also, as indicated earlier in this report, the Employee Benefit Fund had a surplus of $421,249 that had built up over the three years from the 2009FY to the 2012FY. Staff transferred these funds back to the originating fund in 2011/12FY and is reflected in Table 10; Year-End Recommended Budget Adjustments. Table 10. Employee Benefit Fund —Amended Budget vs. Actual Year-End Recommended Amended Budget Employee Benefit Fund Budget Adjustments Actual $Variance %Variance Beginning Fund Balance 469,032 469,032 - Plus Revenues 25,410,033 20,789,511 (4,620,522) -18.2% Less Net Transfers - (491,251) (491,249) 2 0.0% Less Expenditures (32,343,854) (27,687,115) 4,656,739 -14.4% Ending Fund Balance (6,464,789) (491,251) (6,919,821) 36,219 Change in Fund Balance (6,933,821) (491,251) (7,388,853) 36,219 Replacement/Renovation Funds In accordance with the City's financial policies and the General Plan, the City maintains various Replacement/Renovation Funds. The purpose of these Funds is to provide ongoing replacement of City equipment, vehicles, traffic signals, streetlights, and to Page 9 of 11