RES 03081 - Laserfiche WebLink

In accordance with its financial policies and the General Plan, the City maintains various ReplacemenffRenovation Funds. The purpose of these Funds is to provide ongoing replacement of City equipment, vehicles, and streetlights, and to make major repairs/renovations to City facilities, parks and medians in order to extend their lives. The funding sources are interest earnings and replacement accrual charges placed on the Departments for their existing equipment, vehicles and facilities. These replacement charges are determined by the replacement cost and estimated life (similar to depreciation) of the capital involved. In June 1999, the City completed its first formal "Replacement Plan", although informally the replacement concept and the funding accruals had been phased into the budget over the previous ten years. Staff completed a major update of the Replacement Plan as part of the Operating Budget preparation process this spring. Updated estimates were made of the timelines and costs for replacing/renovating each City asset in the program, over a twenty-year time frame (thirty years for parks). The cash flow analysis was then updated using this information, and assuming inflation and interest income. From the cash flow analysis, the base annual accrual rate was updated, to ensure it would be adequate to fund the long term plans, without allowing the replacement/renovation fund balances to become negative or to build excessive reserves. In most cases, the annual funding levels have started to stabilize and will grow more in line with inflation. This is a major achievement that few cities attain, and we are now reaping the rewards. Not only is the City able to achieve and maintain high standards of maintenance for its capital assets, but the replacement/renovation needs of the City are now being met on an ongoing basis without competing in the budget process against dollars needed in the CIP or diverting resources from ongoing operations or expanding services. The benefits of this achievement are quite evident each time the Operating and CIP budgets are being prepared. However, staff would recommend that we continue reviewing the funding levels every two years as part of the budget process, to be able to adjust the annual contributions as factors change. For example, an extended period of low interest rates could result in the interest earnings assumptions being too aggressive. Assumptions about expenditure inflation over several years could be too low. New facilities and parks will need to be added to the renovation programs as they come on line, thereby increasing costs over time. Therefore, regular reviews as part of the two-year budget process are still recommended and will be for the long-term. The budget includes $1 million each year in replacement funding for the Park and Median Renovation Fund. For 2003-04, it is anticipated that approximately $711,000 in park and median improvements will be necessary, and $800,000 for 2004-05. These projects are not yet reflected in the budget, so the fund balance will be further reduced when they (or other projects) are approved and completed. The specific projects will be reviewed by the Parks and Recreation Commission this summer, and their recommendations will be presented to the Council in a separate report. Council's approved funding will then be allocated as part of a quarterly financial report. xxiii