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4.27
THE CORPORATION OF THE TOWNSHIP OF O'CONNOR
1
MUNICIPAL RESERVES AND RESERVE FUNDS POLICY
1. POLICY STATEMENT:
To establish a policy for governing the management and
administration of reserves and reserve funds as delegated under the authority of the
Municipal Act, 2001, Section 290, as amended.
2. PURPOSE: The purpose of this policy is to address long-term funding strategies for
the Township ensuring good financial and cash management for the overall financial
stability of the Township. Maintaining sufficient balances in reserves and reserve
funds is a critical component of a municipality's long-term financial plan as it
strengthens its long-term financial sustainability, helps to minimize fluctuations in the
tax rate and provides funding to sustain infrastructure and financial opportunities that
may arise.
3. DEFINITIONS:
"ANNUAL SURPLUS" - the accumulated excess of revenues over
expenditures for the current year.
"INVESTMENT POLICY" - refers to the Township of O'Connor's Investment
Policy.
"RESERVE FUNDS" - funds with assets which are segregated and restricted
to meet a specific purpose of the reserve fund. They represent monies set
aside either by a by-law of the municipality or by the requirement of provincial
legislation. Interest earned on reserve funds must be allocated to the specific
reserve fund that earned it. There are two types of Reserve Funds:
Discretionary Reserve Funds or Obligatory Reserve Funds.
"Discretionary Reserve Fund" - a reserve fund created under the Municipal
Act, based on Council's discretion, to finance future expenditures for which
the municipality has the authority to spend money, and to set aside a certain
portion of any year's revenues so that the funds are available as required.
Discretionary Reserve Funds are established to assist in funding long term
programs such as the acquisition of Capital Assets. Discretionary reserve
funds can be restricted or unrestricted.
"Obligatory Reserve Fund" - a reserve fund created when a provincial
statute requires that revenue received for special purposes be segregated
from the general revenues of the municipality. Obligatory reserve funds can
only be used for their prescribed purpose.
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THE CORPORATION OF THE TOWNSHIP OF O'CONNOR
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MUNICIPAL RESERVES AND RESERVE FUNDS POLICY (Cont'd)
"RESERVES" - an allocation of accumulated net revenue or approved
budget contribution with no reference to any specific asset. They are set by
Council approval and not restricted by legislation. A reserve is generally used
to mitigate the impact of fluctuations in operating costs and revenue,
prescribed and managed by Council's approval. Reserves do not earn
interest.
4. GUIDING PRINCIPLES
4.1 All Reserve and Reserve Funds transactions, resignations or new reserve
requests must be approved by Council. These approvals will be
comprehensively reviewed by the external auditor at the end of each fiscal
year.
4.2 All Reserves and Reserve Funds must be fully described and must
include a purpose, application, and approval. Unless otherwise stated, all
Reserve Funds are considered committed for the specific purpose as
outlined by the Reserve Funds.
4.3 All Reserves and Reserve Funds accounts must be presented in the
Township's financial statements annually.
4.4 The annual budget shall set out the estimated portion of the revenues
considered necessary to be paid into the Reserve and Reserve Funds.
4.5 All Reserves and Reserve Funds must be reviewed annually by the
Clerk-Treasurer and Council during the annual budget process to
determine if the accounts are still required. When the original intent of a
reserve has been met or changed, any remaining amounts in that reserve
shall, through an appropriate review by the Clerk-Treasurer and Council
be re-designated or returned to surplus. Reserves that are deemed to be
re-designated or returned to surplus shall be approved by Council.
4.6 Reserve and Reserve Funds can be funded though internal sources such
as approved budget contributions and carryover of current year's budget
funds which were approved for a specific purpose but were not expensed
during the year. Reserves can also be funded through external sources
such as government grants and donations.
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THE CORPORATION OF THE TOWNSHIP OF O'CONNOR
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MUNICIPAL RESERVES AND RESERVE FUNDS POLICY (Cont')
4.7 Interest will be paid to Reserve Funds where the funding has come from
external sources that require unspent funding be held in an interest-
bearing account in-line with the Township's Investment Policy.
4.8 All expenditures from Reserves and Reserve Funds must have prior
approval. Approval is obtained by:
4.8.1 existing Township Policies,
4.8.2 the annual operating or capital budget,
4.8.3 an approved carryover project,
4.8.4 Council resolution.
4.9 Expenditures from Reserves and Reserve Funds must not exceed the
reserve balance unless it can be demonstrated to Council through financial
cash flow projects that future sources of revenues will provide adequate
funding to return the reserve to a positive balance.
4.10
Temporary inter-fund borrowing is permitted and encouraged to avoid
external debt charges. However, borrowing from a reserve may occur only
when an analysis of the reserve has determined that excess funds are
available and that the use of these funds will not adversely affect the
intended purpose of the reserve. Any inter-fund borrowing would require
Council approval.
4.11
All Reserves shall be administered by the Clerk-Treasurer and in
accordance with current Township policies and the Generally Accepted
Accounting Principles.
4.12
Reserve and Reserve Funds balances, projected contributions, and
planned expenditure withdrawals shall be presented with the annual
budget. Reserve and Reserve Fund transfers are established with the
approval of the annual budget or must be approved by resolution or
by-law.
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MUNICIPAL RESERVES AND RESERVE FUNDS POLICY (Cont'd)
5. DESCRIPTIONS
RESERVE ACCOUNTS
The use of reserves is one way of maintaining a sound financial position.
However, cash flow changes, risk management, or other considerations may
affect reserve requirements. Reserves must be supported by financial
evidence indicating the extent of the reserves required. Reserves are funded
by surplus monies and/or contributions from the operating budget.
Investments are subject to the Municipal Act and the Investment Policy
adopted by Council. Currently, the Township has established the following
Reserve accounts:
1. OPERATING RESERVES
This reserve will be maintained to fund operating items that were not
anticipated and/or budgeted. It will also be used to take advantage of capital
purchase opportunities that arise quickly. The reserve should be funded
through the annual operating budget with a target funding level equivalent to
20% of the previous year's levy.
2. WORKING RESERVES
This reserve is maintained to provide cashflow for operations to eliminate the
requirement to borrow funds to meet immediate obligations. The reserve
should be funded through the annual operating budget with a target funding
level equivalent to 20% of the previous year's levy.
3. LEVY STABILIZATION RESERVE
This reserve would be used to minimize tax rate increases that are caused by
extraordinary or unforeseen events, one-time expenditures, and revenue
shortfalls. The reserve would minimize the impact on the general tax levy and
help manage cash flow. The reserve should be funded through the annual
operating budget with a target funding level equivalent to 20% of the previous
year's levy.
4. MUNICIPAL BUILDINGS RESERVE
This reserve was established to provide a source of funds to refurbish,
replace, and maintain the Township's buildings. Target funding level should
be 20% of the previous year's replacement cost for tangible capital assets.
This reserve should be funded through the annual operating budget.
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MUNICIPAL RESERVES AND RESERVE FUNDS POLICY (Cont'd)
5. OFFICE EQUIPMENT RESERVE
This reserve is to fund the replacement and purchase of office equipment.
Target level for funding this reserve will be the current replacement value of a
new photocopier and two new computer systems. This reserve should be
funded through the annual operating budget.
6. ROADS EQUIPMENT RESERVE
This reserve is to fund the replacement and purchase of roads department
vehicles and equipment. The reserve should be funded through the annual
operating budget with a target funding level equivalent to 20% of the previous
year's levy.
7. FIRE DEPARTMENT EQUIPMENT RESERVE
This reserve was established to fund the replacement and purchase of fire
services vehicles and equipment. The reserve should be funded through the
annual operating budget with a target funding level equivalent to 20% of the
previous year's levy.
8. TURNOUT GEAR RESERVE
This reserve is for the purpose of purchasing turnout gear for the Fire
Department to mitigate fluctuations in the operating budget. Target level for
funding this reserve should be the current replacement value of ten turnout
gears. The amount budgeted for turnout gear, but not purchased at yearend,
should be transferred to this reserve.
9. DISPOSAL SITE RESERVE
This reserve is for the purpose of providing a source of funding to offset future
Disposal Site costs, closure of the current Disposal Site and opening of a new
Disposal Site. Target funding level for this reserve should reflect the
estimated cost of closing the existing disposal site, post closure expenses
and the opening of a new Disposal Site. This reserve should be funded
through the annual operating budget.
10. INSURANCE RESERVE
This reserve is to fund costs incurred for fluctuation in insurance coverage
and payment of claims (deductibles). Target level for funding this reserve will
be twice the current insurance deductible as detailed in the insurance policy.
This reserve should be funded through the annual operating budget.
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MUNICIPAL RESERVES AND RESERVE FUNDS POLICY (Cont'd)
11. ELECTION RESERVE
This reserve is to fund election expenditures which occur every four years for
the municipal election. Target level for funding this reserve will be the
estimated cost of running an election. This reserve should be funded through
the annual operating budget.
12. INFRASTRUCTURE PROJECTS RESERVE
This reserve is to fund the municipal portion of provincial and federal funding
opportunities for roads, bridges and culverts, as well as the capital/assets
needed to make them operational. The reserve should be funded through the
annual operating budget with a target funding level equivalent to 20% of the
previous year's levy.
RESERVE FUNDS ACCOUNTS
Reserve Funds are funds set aside for a specific purpose as required by
provincial legislation, a municipal by-law, or agreement. Reserve Funds
receive an annual interest allocation based on the average annual
balance. The Township currently has no established Reserve Funds.
6. ROLES AND RESPONSIBILITIES
6.1 Council
- In accordance with the Municipal Act 2001, Section 224, Council shall
develop and evaluate policies, ensure that administrative policies,
practices and procedures and controllership policies, practices and
procedures are in place and maintain the financial integrity of the
municipality;
- Set targets for Reserves and Reserve Funds inline with directives
contained in this policy and other pertinent policies; and
- Approve transactions to and from Reserves and Reserve Funds through
the budget process or by specific resolution for Reserves and By-law for
Reserve Funds.
6.2 Clerk-Treasurer or Designate
- Develop and update this policy as necessary and present changes to
Council;
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MUNICIPAL RESERVES AND RESERVE FUNDS POLICY (Cont'd)
- Ensure that the principles and requirements contained in this policy are
applied consistently and across all departments;
- Determine the need for or termination of Reserves and Reserve Funds
and report to Council during budget or when required;
- Perform the transfers to and from Reserves and Reserve Funds as
authorized by Council;
- As part of the reporting to Council, review and report on the adequacy and
continuing need for Reserve and Reserve Funds managed by the
Township of O'Connor;
- Preparation and presentation of reports and/or By-laws associated with
the establishment, monitoring, or termination of Reserves and Reserve
Funds;
- Advise Council on the latest operating and capital expenses;
- Recommend strategies for the adequacy of reserve targets;
- Develop appropriate practices, procedures and processes for the
investment of Reserves and Reserve Funds inline with legislative
requirements, the Township of O'Connor's Investment Policy and other
pertinent policies;
- Maintain the Township's Strategic Asset Management Plan with
consideration of appropriate Reserves and Reserve Funds to effectively
meet the Township's operating and capital budget financing needs;
- Ensure Reserves and Reserve Funds are inline with Provincial and
Federal government statutes and agreements and other pertinent policies;
and
- Report to Council the reserve balances and forecast as part of the annual
budget approval process.
7. REPORTING
The Clerk-Treasurer or designate, shall prepare the following reports
regarding Reserves and Reserve Funds managed by the Township of
O'Connor.
7.1 Annual Audited Financial Statements
The Annual Audited Financial Statements shall include statements of financial
position, financial activities, and changes in fund balances for Reserves and
Reserve Funds.
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MUNICIPAL RESERVES AND RESERVE FUNDS POLICY (Cont'd)
7.2 Annual Budget
Contributions to and budget appropriations from Reserve and Reserve Funds
will normally be approved by Council as part of the annual Budget or
specifically by resolution.
7.3 Other Reports
Other reports in line with this Policy shall be brought forward to Council as
required.
8. REVIEW
This Policy shall be presented to Council for review annually during the budget
deliberations, and updated every four years, in the third year of each elected
Council, or as deemed necessary by Council or the Clerk-Treasurer.
EFFECTIVE DATE:
This policy is in effect as of September 27, 2021