SR 05:300 - Laserfiche WebLink

INTERNAL SERVICE FUNDS Internal charges (accruals) are costs reflected in the operating budgets that represent liabilities we are accumulating as we go along. These liabilities may not result in actual expenditures in the short term, but they will result in future expenditures. There are several examples of future expenditures for which we charge ourselves now, as the liability is accruing. These include accruals for the future replacement of equipment we are now using (similar to charges for depreciation). They also include accruals for renovation of Park and City facilities that are aging as we use them, and employee costs that are accruing now but will be paid out later, such as unused vacation and benefits. 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 burden on future generations. Replacement/Renovation Funds In accordance with its 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, 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 department budgets 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 items involved. Every two years, as part of the preparation for the next two-year budget cycle, replacement/renovation plans and timelines are updated for the next 20 years or more. The latest version of the City's Replacement Plan was completed last spring as part of the preparation of the two-year (FY06-FY07) budget. Based on this update and with only a few exceptions, staff believes the Funds are essentially established at the correct levels, and therefore, annual funding should stabilize in the future and grow more in line with inflation. Historically, the City has been able to use these Funds to help smooth out challenging budget periods that resulted primarily from economic factors and State impacts. This smoothing was accomplished by temporarily reducing annual contributions to the Funds in very lean years, and then making additional contributions in better years. Should the City again be impacted by a weak economy or State budget impacts, these Funds could be used as a temporary source to help maintain service levels until appropriate budget adjustments could be made. Obviously, these Funds are not adequate to sustain prolonged budgetary problems, but as part of the City's focus on long term financial sustainability, the Funds are a valuable tool in helping smooth the highs and lows of economic cycles over time. As of June 30, 2005, revenue to these Funds was essentially on target with projections. Expenditures, on the other hand, are occurring slower than expected. Therefore staff is recommending that the budget for many of the expenditures planned for FY05 be carried over to FY06. SR 05:300 15