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Policy Adopted: November 2020
1
Reserve and Reserve Fund Policy
Policy Statement:
The Municipal Act, 2001, section 290 provides that a municipality's budget shall set out
amounts to be paid into and out of reserves. A municipality may establish reserve funds
for any purpose for which it has authority to spend money.
Purpose:
The purpose of this policy is to establish consistent principles, standards and guidelines
for the maintenance, management and accounting of reserves and reserve funds. The
primary purpose for reserves and reserve funds is:
- Adherence to statutory requirements;
- Promotion of financial stability and flexibility;
- Provision for major capital expenditures;
- Smooth expenditures which would otherwise cause fluctuation in the operating
and capital budgets; and
- To take advantage of financial opportunities that may arise.
Definitions:
In this policy the following definitions are used:
a) "Deferred Revenue" means revenue that is considered a liability on the
Town's financial statements until it becomes relevant to current
operations, such as prepayment received for goods or services that have
not yet been provided. Some Deferred Revenue is set aside in obligatory
reserve funds for a specific purpose as required by legislation, regulation,
or agreement such as development charges, cash-in-lieu of parkland,
and federal and provincial gas tax.
b) "Discretionary Reserve Fund" means Reserve funds created at the
discretion of Council whenever revenues are earmarked to finance
future expenditures of a purpose designated by Council.
c) "Obligatory Reserve Fund" means Reserve funds that are required by
legislation or agreement to be segregated from the Town's general
revenues for a special purpose or for works to be undertaken on behalf of
the contributor. These funds are classified in the financial statements as
Deferred Revenue.
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d) "Reserve" means an allocation of accumulated net revenue that makes
no reference to any specific asset and does not require the physical
segregation of money. Established primarily for the purpose of providing
working funds. A reserve cannot have a revenue or expense of itself,
like a reserve fund.
e) "Reserve Fund" means a fund that is segregated and restricted to meet
a specified purpose and includes both an obligatory reserve fund and a
discretionary reserve fund.
Responsibilities:
Municipal Council
Municipal Council shall:
a) In accordance with the Municipal Act 2001, Section 224 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.
b) Approve transactions to and from reserves and reserve funds through the budget
process or by specific resolution (for reserves) and by-laws (for reserve funds).
Chief Administrative Officer
The Chief Administrative Officer shall:
a) Support the Director of Finance in ensuring the principles and mandatory
requirements contained in this policy are applied consistently across all
Town departments.
Director of Finance / Treasurer
The Director of Finance shall:
a) Develop and update this policy as necessary and present changes to Council;
b) Ensure that the principles and requirements contained in this policy are
applied consistently across all departments;
c) Perform the transfers to and from reserves and reserve funds as authorized by
Council;
d) Recommend strategies for the adequacy of reserve levels; and
e) Report to Council the reserve balances and forecast as part of the annual
budget approval process.
Department Directors
Department Directors shall:
a) Provide the Director of Finance with the most current capital asset information to
be used in the assessment of the adequacy of capital lifecycle reserves;
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b) Ensure their departments 10 year capital plan is updated each year;
c) Inform the Director of Finance when reserve or reserve fund transfers are
required; and
d) Consult with the Director of Finance when reserve funds are required for
unbudgeted transactions.
Policy:
Establishment of Reserves and Reserve Funds
Reserves will be maintained to meet one of the following purposes of the Municipality:
1. Capital Asset Replacement - established to smooth the spikes in capital
budgets and smooth out property tax changes. This reserve will segregated by
department;
2. Municipal Project Reserves - Establish a reserve to fund future municipal
projects that are expected and the costs is mostly known;
3. Economic Stability Reserves - established to buffer against significant
fluctuations in the economy;
4. Contingency Reserves - established to accommodate contingent, unfunded or
known liabilities
5. (where the amount is unknown) for current and/or future years;
6. Working Capital Fund Reserves - established to provide cash flow for
operations to eliminate the requirement to borrow funds to meet immediate
obligations. These funds can also be used to smooth spikes in operating
budgets year over year; and
7. Rate Stabilization Reserves - These funds can also be used to smooth spikes in
operating budgets year over year;
Reserves can be established through the following processes:
1. Inclusion in the annual operating or capital budget which is approved by Council;
2. Through resolution of Council; or
3. Surplus remaining at the end of the year will be moved into capital reserves unless
otherwise directed by the Department head.
The budget document or resolution will clearly identify the name of the reserve being
created and the purpose for the reserve. A reserve may be amended through
resolution.
Reserve Funds will be maintained in the following categories:
1. Discretionary - subdivided into:
a) Operating
b) Capital
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c) Specific Use
2. Obligatory
Council, on the recommendation of the Director of Finance may establish a
discretionary reserve fund:
A reserve fund can be recommended only if at least one of the following applies:
a) A mandatory obligation exists, either pursuant to legislation or contract
b) The funds are intended for purchasing or maintaining capital assets
c) The funds are donated for a specific purpose
d) The funds are intended to fund a future liability
A report which recommends the establishment of a reserve must include the following:
a) Statement of purpose
b) Rationale for the appropriate level to be maintained or targeted in the reserve
c) Initial contribution
d) Contribution policy
A Discretionary Reserve Fund will be established through by-law. The by-law will
clearly identify the name of the reserve fund, the funding method and the purpose for the
reserve fund. A reserve fund can only be used for the identified purpose, unless Council
amends or repeals the establishing by-law.
An Obligatory Reserve Fund is established either through terms of an agreement
which is entered into by the Town or through legislation from a higher level of
government. Obligatory Reserve Funds will be added to the summary of Reserve
Funds. Council cannot create an Obligatory Reserve Fund.
In order to achieve maximum flexibility, when establishing a reserve or reserve fund,
the intended use should be defined in more general terms such as "facilities" rather
than "hockey arena". The Finance Department will establish tracking procedures to
ensure that funds in the reserve or reserve fund that are earmarked for a specific
project are easily identifiable to management and Council.
Approval of funding allocations to and from Reserves and Reserve Funds:
Approval of funding to and from the Reserves and Reserve funds will be in accordance
with the Town's established Budget Policy and reports to Council as referred to above.
Closing Reserves and Reserve Funds:
If the purpose or purposes for which the reserve or reserve fund was created have been
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accomplished and the reserve or reserve fund is determined to be no longer necessary,
the Director of Finance, in consultation with the Department Director, shall report to
Council with the recommendation on:
a)
The closure of the reserve or reserve fund
b)
The disposition of any remaining funds
c)
The necessary amendment to the Reserve by-law
A resolution of Council will be required to close a reserve.
The By-law establishing the Reserve Fund will be required to be repealed in order to close
a Reserve Fund.
Allocation of Operating Surplus / Deficit:
1. Year-end General Levy budget surplus will be allocated to the department's
capital reserve unless otherwise directed by the Director of the department.
2. Year-end General Levy budget deficits will be funded by a reserve fund if
available. If not reserve fund amount is available the deficit will be funded through
proceeding years tax levy.
3. Year-end Water and Wastewater budget surplus will be allocated to appropriate
Water or Wastewater Reserve. Deficits will be funded from the Water and
Wastewater Reserve, if insufficient any shortfall will be funded from the preceding
years Water and Wastewater levy.
Interest Allocation:
1. Reserve funds will be invested in accordance with the Town's approved
investment policy. Earnings shall be credited to the individual reserve fund
account as deemed appropriate by the Director of Finance.
2. Reserves shall not be allocated interest but can be invested as approved the
in the Town's investment policy as the Director of Finance deems
appropriate.
Total Reserve Target:
1. The target for each reserve and reserve fund is identified in Schedule 1 to this
policy
2. The Director of Finance will review the targets annually and propose changes to
the target levels as required.
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Temporary Reserve Fund Borrowing:
Temporary borrowing to cover a reserve short-term deficit, interim servicing requirements
or internal financing is permitted, when justified, adequately supported and authorized by
Council.
However the following conditions must be met in order to allow borrowing from reserve
funds:
1. Borrowing must not adversely affect the intended purpose of the reserve.
2. A plan to repay the reserve within a reasonable timeframe is required and must be
documented.
3. Interest, equivalent to the Town's interest on reserve fund bank accounts,
will be applied to outstanding amount borrowed.
4. Where applicable, legislative requirements may apply. For example, the
Development Charges Act permits inter-fund borrowing only between
development charge reserve funds and prescribes a minimum interest rate
(i.e. Bank of Canada prime rate as of the document approval date, updated
on the first business day of every January, April, July and October).
Annual Reporting:
Reporting of Reserves and Reserve Funds will occur through the following processes:
1. A year to date continuity schedule will be included in quarterly variance reports to
Council.
2. As required under development charge legislation, if and when a Development
Charges By-law is enacted by Council, the Director of Finance will provide Council
with a financial statement related to the Development Charge By-law and include
information regarding development charge reserve funds. This statement will then
be forwarded to the Minister of Municipal Affairs and Housing within 60 days after
Council receipt.
3. Year-end audit and financial statements - balances of reserves, both obligatory
and discretionary reserves and reserve funds will be presented with note
disclosure and comparative figures as required to meet PSAB reporting
standards.
4. Where required, reporting to Council or other agencies may exist for reserved
residual balances related to grants or other contributed funds (e.g. Federal and
Provincial Grants).
6
Schedule A - Obligatory Reserve Funds
Reserve Name
Capital or
Operating
Purpose
Source of
Funding
Basis for
Target
Reserve
Balance
Target
Balance
Basis for
Target
Minimum
Annual
Contribution
Target
Minimum
Annual
Contribution
Development
Charges
Capital
To provide
funding for
capital
expansion
related to
growth
Collected
from
developers in
accordance
with the
Development
Charges Act,
as enacted
via By-law
N/A
N/A
N/A
N/A
Parkland Reserve
Fund
Capital
To provide
funding for
park space
when
development
occurs
Contributions
under the
Panning Act
N/A
N/A
N/A
N/A
Provincial Gas
Tax
Both
For transit
related
operations in
accordance
with
Provincial
Gas Tax (Ie
Road,
bridges,
transit, ect.)
Quarterly
payments
from the
province
N/A
N/A
N/A
N/A
7
Reserve and Reserve Fund
Schedule B - Reserve Funds
Reserve Name
Capital or
Operating
Source of
Funding
Basis for
target
Reserve
Balance
Target
Balance
Basis for
Target
Minimum
Annual
Contribution
Target
Minimum
Annual
Contribution
LCPW - Dredging
Fund
Operating
Budget
Contributions
N/A
N/A
N/A
N/A
LCPW -
Infrastructure
Capital
Budget
Contributions
Based 10 year
capital plan
Based 10 year
capital plan
Based 10 year
capital plan
Based 10 year
capital plan
LCPW - Clean Flo
Operating
Budget
Contributions
N/A
N/A
N/A
N/A
LCPW - Equipment Capital
Budget
Contributions
Based 10 year
capital plan
Based 10 year
capital plan
Based 10 year
capital plan
Based 10 year
capital plan
LCPW - Shore
walls
Operating
Budget
Contributions
N/A
N/A
N/A
N/A
Ramara Trails
Capital
and
Operating
Budget
Contributions
N/A
N/A
N/A
N/A
Library Expansion
Reserve
Capital
Budget
Contributions
N/A
N/A
N/A
N/A
8
Reserve and Reserve Fund
Schedule C - Summary of Reserves
Name
Reserve
Type
Purpose
Funding Source
Annual
contribution goal
Reserve Balance
Goal
Department
Capital
Reserves(Example
Capital
To fund large capital
purchases to avoid spikes
in the yearly tax rate
Budget
contributions,
year-end surplus,
grants
See 10 year
capital forecast
See 10 year
capital forecast
Working Capital
Reserves
Operating
To fund operating
expenses on a yearly or
emergency basis. This
fund can be used to avoid
tax rate spikes cause by
increases in operating
costs
Budget
contributions year-
end surplus
2 to 5% annual
N/A
Library Capital
Operating
To fund Library operating
costs to avoid large
increases in grant request
from the Municipality
Grants, donations,
year-end surplus
2 to 5% annual
N/A
Water Capital
Capital
To fund large capital
purchases to avoid large
increase in water and
sewer rates
Budget
contributions,
year-end surplus,
grants
See 10 year
capital forecast
See 10 year
capital forecast
Mosquito Control
Operating
Surplus from Mosquito
control operations to
avoid any large increases
in operating cost
9
Reserve and Reserve Fund
Election
Operating
Budget contributions set
aside to help cover the
cost of the election every
four(4) years
Budget
contributions
25% of estimated
election costs
Estimated budget
cost
Municipal Projects Operating
Budget contributions set
aside to help cover the
cost of specific municipal
projects in a year where
costs are higher than
average
Budget
contributions
N/A
N/A
Rate Stabilization
Operating
Budget contributions set
aside to use when tax
rate increases are higher
than an average year.
This reserve can be a
general reserve or
specific to a cost
groups(ie OPP)
Budget
contributions
N/A
N/A
Contingencies
Operating
Budget contributions to
cover emergency or
contingent liabilities that
may arise
Budget
contributions
N/A
N/A