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Policy:
Reserves and Reserve Funds
No.:
FIN-13
Effective Date:
By-Law No.:
2025-1995
Review Date:
(4 years from effective date)
1
FIN-13
1.0
POLICY STATEMENT
The purpose of this policy is to establish consistent principles, procedures and guidelines for the
accounting, maintenance and management of reserves and reserve funds.
2.0
PURPOSE
The Municipal Act, 2001, requires that a municipality's budget shall set out amounts to be paid
into and pulled out of reserves. Section 417 of the Municipal Act states that a municipality may
establish reserves and reserve funds for any purpose for which it has the authority to spend
money. This policy identifies and rationalizes the various reserves and reserve funds held by
the Township of Lanark Highlands.
Reserves and Reserve Funds shall be established to:
-
Adhere to statutory requirements or accounting standards.
-
Provide a source of internal financing.
-
Facilitate and support long-term planning and strategic objectives.
-
Plan for the impact and financing of major capital projects, asset replacement and major
maintenance over time thereby reducing the need for tax and user fee funded long-term
financing.
-
Stabilize user fees and tax rates in the face of uncontrollable factors (growth, interest rates,
changes in subsidies/grants, extreme weather, cyclical shifts in operations) and, to stabilize
service levels.
-
Absorb the cost of one-time, emergency or unanticipated expenditures not included in the
annual operating or capital budgets.
-
Maintain certain levels of liquidity and cash availability.
-
Fund future known obligations such as, but not limited to, employment or creditor related
liabilities.
-
Fund special programs or initiatives that involve major expenses
3.0
DEFINITIONS
In this policy:
Act shall mean the Municipal Act, 2001, S.O. 2001, c. 25, as amended.
Capital Reserve shall mean a reserve established to support future infrastructure or asset
replacement and renewal to minimize risk, support future initiatives, and provide funds for
28 October 2025
2 FIN-13
unknown capital contingencies.
CAO shall mean the Chief Administrative Officer of the Township.
Council shall mean the duly elected Council members of the Township.
Deferred Revenue shall mean revenue that is considered a liability on the Township's
financial statements until it becomes relevant to current operations, such as pre-payments
received for goods or services that have not yet been provided. Some deferred revenue is
set aside as obligatory reserves for a specific purpose as required by legislation, regulation,
accounting standard or agreement such as, but not limited to, development charges, cash in
lieu of parkland and grant funding.
Discretionary Reserve Fund shall mean a reserve established by Council by-law for a
specific purpose. The funds shall be spent for the purposes specified in the by-law.
Equipment Reserve shall mean a reserve established to support on-going life cycle
replacement of equipment.
General Reserve shall mean an apportionment of net revenues set aside at the discretion of
Council to assist with the maintenance of its financial position and may be established for any
municipal purpose.
Internal Borrowing shall mean temporary borrowing from reserves and reserve funds,
subject to legislative restrictions. Council shall establish a repayment plan not to exceed a
reasonable term or the life of the need. Interest shall be applied at a rate equivalent to the
Township's interest earnings on surplus funds held in bank accounts or investments or as
defined by legislation.
Obligatory Reserve Fund shall mean a reserve that the Township is required to set up to
meet the requirements of a Provincial statute or agreement with other entities such as the
Federal or Provincial governments. To set an obligatory reserve fund, the Township shall
collect and segregate specified revenues. The Township shall use the available funds solely
for the purpose prescribed by statute or agreement.
Operating and Program Specific Reserve shall mean reserves established to fund normal
operating requirements, specific programs, or cash flow deficiencies that do not require
Council approval provided they conform with the intent of the original policy, resolution or by-
law.
PSAB shall mean the Public Sector Accounting Board, an independent Board with the
authority to set accounting standards for the public sector.
Reserve Funds shall mean funds set aside for a specific purpose as required by legislation,
regulation, accounting standard, agreement or by-law and consist of obligatory (externally
restricted) or discretionary (internally restricted) reserve funds.
Stabilization Reserve shall mean a reserve established to manage cash flows, off-set in year
3
FIN-13
revenue shortfalls or in-year expenditure overages due to extraordinary or unforeseen
situations including emergencies. These reserves are restricted to extraordinary or
unexpected events and shall not be used to balance operating budgets.
Township shall mean The Corporation of the Township of Lanark Highlands.
Treasurer shall mean the Treasurer of the Township.
4.0
ROLES AND RESPONSIBILITIES
4.1
The Treasurer shall make recommendations to Council to establish a discretionary reserve
or reserve fund in addition to any required amendments to this policy.
4.2
The Treasurer shall perform the transfers to and withdrawals from reserve and reserve
funds as approved by Council.
4.3
The Treasurer shall recommend strategies for the adequacy of reserve levels.
4.4
Obligatory reserve funds shall be established and maintained by the Treasurer pursuant to
legislation, agreement or contract.
4.5
The Treasurer shall report to external agencies or governments as required.
4.6
The Treasurer shall continuously review, and report at least annually to Council as to the
balances held in each reserve and reserve fund to confirm use, relevancy,
appropriateness and target balances.
4.7
Council shall approve the allocations to and from reserves and reserve funds by resolution
or by-law.
5.0
SPECIFIC DIRECTIVES
5.1
The target for each reserve is found in Schedule A of this policy. The targets shall be
reviewed annually by Staff to ensure their adequacy and reasonableness. Methodologies
for establishing targets are specific to each reserve or reserve fund and shall consider the
following:
-
Purpose of fund (operating or capital)
-
Certainty of end needs (contingency or long-term replacement/obligation)
-
Economic factors (inflation, interest, cyclical pressures, growth)
-
External factors (agreements, legislation, PSAB)
-
Multi-year forecast of contribution and projected usages.
5.2
Reserves and reserve funds may be invested for a term that will not exceed their expected
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FIN-13
date of need. The related investment income shall be credited monthly to the specific
reserve fund and be governed by the investment policy.
5.3
All contributions to or withdrawals from reserves and reserve funds shall be approved by
Council, normally as part of the annual budget approval or specifically by resolution with
the following exceptions:
-
Contributions that are considered obligatory
-
Transfer for funds between reserves and reserve funds based on fund adequacy or
other related information, at the Treasurer's discretion.
-
Contribution and use of operating reserves for the purposes approved by Council.
5.4
Temporary borrowing to cover reserve and reserve fund short-term deficit, interim
servicing requirements or internal financing shall be permitted when justified, adequately
supported and authorized by Council. Borrowing shall not adversely affect the intended
purpose of the fund. A documented plan to repay the fund within a reasonable time frame
shall be required. Interest equivalent to the Township's interest on reserve fund bank
accounts shall be applied to the outstanding amount borrowed.
5.5
Where a reserve or reserve fund is no longer required, the Treasurer, in consultation with
the applicable Department shall report to Council with a recommendation on the closure of
the fund, the disposition of the remaining funds and any necessary amendments to this
policy or applicable by-law. New reserves or reserve funds shall be established by
amending this policy.
6.0
ATTACHMENTS
Reserves and Reserve Funds Policy Schedule A
7.0
REFERENCE DOCUMENTS
Municipal Act, 2001, S.O. 2001, c. 25
Planning Act
Building Code Act
Federal/Provincial Agreements
FIN-13
Schedule "A"
Township of Lanark Highlands Obligatory Reserve Funds:
Reserve Fund Authorized Use of
Funds
Sources of Funds
Township
Reserve
Account Number
Target
Building Code
Administration
Cover the operating
costs of administration
and enforcement of the
Building Code when fee
revenues are not
sufficient
Purchase capital items
required for the building
department such as
vehicles and equipment
Year-end surplus of the
Building Department of
the Township in
accordance with
subsection 7 (2) of the
Building Code Act
CBO Vehicle
Replacement
2300-000000-177 Varies- depends
on future
replacements
Canada
Community
Building Fund
(former
Federal Gas
Tax)
Finance local
infrastructure priorities
Grants from the Federal
Government awarded in
accordance with the
program objectives and
the agreement signed by
the Township with the
Government of Ontario
and the Association of
Municipalities of Ontario
Gas Tax
Infrastructure
Projects
2300-000000-188 N/A
Ontario
Community
Infrastructure
Fund
Finance local
infrastructure priorities
Grants from the
Provincial Government
awarded in accordance
with the program
objectives and the
agreement signed by the
Township with the
Government of Ontario
OCIF Projects
2300-000000-202 N/A
FIN-13
Parkland
(Recreational
Land)
Fund the purchase and
development of
parkland in developing
or redeveloping areas
as well as the
upgrading of existing
parks and facilities
needed as a result of
the intensification of an
area
Payments made by
developers in lieu of
conveying parkland as a
condition of the
development in
accordance with the
Planning Act including
amendments to the Act
under the More Homes,
More Choice Act, 2019
Reserve Fund-
Separate bank
account
0900-000000-191 N/A
Township of Lanark Highlands Discretionary Reserves and Reserve Funds
Working Fund
Reserves
Authorized Use of
Funds
Sources of Funds
Township
Reserve
Account Number
Target
Surplus/Operating
Reserves
(Stabilization)
Cover payments
and expenses
required for day-to-
day operations
when cash
balances are low
prior to the receipt
of tax collections
and other revenues
Reduce the
reliance on short-
term borrowings to
meet obligations
They can be general in
nature or defined to
assist specific
municipal functions
Year-end surplus, if any
Surplus/Deficit
Operating Funds
2300-000000-170
2300-000000-171
Overall-15% of
annual tax
revenues
FIN-13
Operating
Reserves and
Discretionary
Fund Reserves
Authorized Use of
Funds
Sources of Funds
Township
Reserve
Account Number
Target
Municipal
Elections
Fund the expected
expenses related
to the organization
of elections and
avoid an excessive
burden on the tax
levy in an election
year
Annual budget allocation
Election
Expense
2300-000000-181 Annual budget
should be 25% of
the estimated
future election
costs
Insurance
Provide
contingency funds
for losses,
damage, costs and
expenses as
incurred through
insurance claims
Provide funds to
offset unforeseen
variation in
insurance
premiums
These reserves are
established either
through a budget
allocation or from annual
savings between budget
and actual expense each
year
Insurance
2300-000000-169 N/A
Program
Reserves
Provide funds to
maintain existing
programs
Provide funds to
support new
programs and
initiatives
These reserves are
established either
through a budget
allocation or from annual
savings between budget
and actual expense each
year
Frosty Fling
Policing
Legal Costs-Tax
Sales
Re-Use it Centre
0800-000000-147
2300-000000-194
2300-000000-197
2300-000000-200
N/A
FIN-13
Capital Reserves
and Discretionary
Fund Reserves
Authorized Use of
Funds
Sources of Funds
Township
Reserve
Account Number
Target
Capital/Equipment
Reserves
Fund major
rehabilitation or
replacement of
existing assets and
ensure municipally
owned assets do
not deteriorate
over time
Support the asset
management plan
by providing
predictable
financing of the
capital assets
lifecycle expense
requirements
Reduce or
eliminate the
reliance on long-
term debt to
finance capital
These reserves are
established as part of the
annual budget process or
by an allocation of any
year end surplus as
determined by Council
Lanark
Highlands Arena
Capital
Expenditures
Roads
Equipment
Replacement
Recreation
Microphones
Master Fire Plan
Recreation
Equipment
Vincent Hall
Park
Emergency
Generator
Administration
Building
Lanark Village
Museum
0880-000000-172
2300-000000-172
2300-000000-173
2300-000000-174
2300-000000-175
2300-000000-176
2300-000000-178
2300-000000-183
2300-000000-186
2300-000000-190
2300-000000-192
Annual budget
depends on the
requirements of
Asset
Management and
other long-term
planning
documents.
FIN-13
Computer
Upgrades
Water & Sewer
Cemeteries
Lanark
Highlands Fire
Department
PPE Equipment
Fire Hose
Replacement
SCBA
Planning-OPA
Planning-Zoning
2300-000000-195
2300-000000-196
2300-000000-201
2331-126000-186
2331-126000-187
2331-126000-188
2331-126000-189
2381-000000-170
2381-000000-172