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ReplacemenURenovation Funds In accordance with its financial policies and the General Plan, the City maintains various ReplacemenURenovation 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. Historically, the City has been able to use the Replacement 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, 2007, actual revenue to these Funds exceeded the budget in all cases due to interest earnings exceeding budget. Expenditures, on the other hand, continue to occur slower than expected. Therefore, staff is recommending that the budget for many of the expenditures planned for FY 2006-07 be carried over to FY 2007-08. In addition, amid-year budget adjustment was made that reduced General Fund contributions by $550,867 as part of the strategy to maintain a balanced budget. Emplovee Benefit Fund The Employee Benefit Fund (EBF) is used to account for non-salary 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 FY 2007-08, expenditures exceeded budget by $165,100 and revenues exceeded budget by $773,823. The expenditures for benefits and retirement costs were actually less than budget, however, the accrued comp and vacation time earned by employees during the year was the primary reason expenditures exceeded budget. The revenues that exceeded budget were charges to operating departments. The FY 2008-09 budget will be adjusted lowering charges to departments to provide a credit for the prior year excess charges. ALL OTHER OPERATING FUNDS For the most part, budget variances are smal Landscape District Funds and Geologic Hazard expenditures less than budgeted. for the other Operating Funds. Most of the District Funds were slightly under budget, with The Lower Income Housing Fund had revenue exceed the budget estimate by $648,561 which was primarily due to developer fee revenue that exceeded budget by $524,458 and interest income that exceeded budget by $164,210. Expenditures were below budget by $298,819 with $275,567 being carried over into 2008-09. The Recycling and Waste Management Fund actual revenue exceeded budget by $18,636 and expenditures were below budget by $357,437. Page 8 of 9