April 21, 1998
To:Strategic Policies and Priorities Committee
From:City Clerk
Subject:Establishment of City Reserves and Reserve Funds
Recommendation:
The Budget Committee on April 20, 1998, recommended to the Strategic Policies and Priorities Committee, and
Council, the adoption of the report (April 16, 1998) from the Chief Financial Officer and Treasurer.
Background:
The Budget Committee on April 20, 1998, had before it a report (April 16, 1998) from the Chief Financial Officer and
Treasurer regarding the establishment of City Reserves and Reserve Funds.
City Clerk
Barbara Liddiard/rc/cp
Item No. 14
Attachment
c.Chief Financial Officer and Treasurer
Chief Administrative Officer
Mr. Ken Colley, Finance Department
Mr. Shekhar Prasad, Finance Department
(Report dated April 16, 1998, addressed to the Budget Committee from the Chief Financial Officer and Treasurer)
Purpose:
The purpose of this report is to approve the consolidation and establishment of reserves and reserve funds for the new City
of Toronto as of January 1, 1998.
Funding Sources, Financial Implications and Impact Statement:
Funding for the City reserves and reserve funds to be established is provided from the reserves and reserve funds of the
seven municipalities amalgamated as of January 1, 1998. Amounts which are identified in this report are preliminary at this
time pending finalization of the 1997 accounts in each municipality.
Recommendations:
It is recommended that:
(1) Reserves and reserve funds in the amount of $915,445,484 be established and consolidated where appropriate as listed
in Schedule I; and
(2) That a further report on the adequacy of each reserve and reserve fund established be brought back as soon as possible
after an analysis of projected inflows and outflows is complete.
(3) Staff be directed to prepare a bylaw giving effect to the consolidation or continuance of reserve funds included in this
report.
Council Reference / Background / History:
The amalgamation of seven Toronto municipalities, as of January 1, 1998, results in the accumulation of reserves and
reserve funds previously established for a variety of purposes. In some cases, the use of a reserve fund has been restricted
by legislation or agreement with a third party. In many cases the use of the reserve or reserve funds was at the discretion of
Council. Where reserves or reserve funds have been established for similar purposes, it is appropriate to consolidate these
into a single reserve or reserve fund upon amalgamation.
Schedule I attached to this report groups the reserves and reserve funds as of January 1, 1998 for consolidation purposes
and provides preliminary balances pending the finalization and audit of the 1997 accounts. Part A of this schedule
identifies those reserves and reserve funds which are discretionary, which can be used for other purposes as Council may
approve and which relate to tax supported funding, either in the form of the tax mill rate or user fees. Part B groups those
reserve funds which are funded from user fees but which are restricted as to use by the Development Charges Act, the
Planning Act, or agreements with third parties. Part C groups those reserves and reserve funds which are rate supported by
water and parking operations.
Discussion:
The rationale for the establishment of reserves and reserve funds included in this report is described below.
Working Capital Reserve:
A working capital reserve is intended to ensure adequate resources are available to cover net operating expenditures. This is
of particular concern at the start of a year when operating cash flows are negative. In 1998, there was a negative operating
cash flow of approximately $200 million in January.
Employee Related Reserve Funds:
- Workers= Compensation Reserve Fund.
- Employee / Retiree Benefit Reserve Fund.
- Sick Leave Reserve Fund.
- Workforce Reduction Reserve Fund.
Four reserve funds are required for funding obligations to the municipal workforce. A study is being done to quantify these
obligations.
Productivity Improvement Reserve Fund:
A Productivity Improvement Reserve Fund is recommended to provide the initial funding on projects which are expected
to generate long term savings from productivity improvements. The annual savings generated from approved projects
would be used to replenish the initial funding and would include a component for interest.
Insurance Reserve Fund:
An Insurance Reserve Fund is required to fund various insurance claims and related adjusting and legal expenses. The
balance available in the Insurance Reserve Fund is necessary to cover future payouts on losses which have occurred and
includes any payment below deductible limits or above coverage levels.
Vehicle and Equipment Replacement Reserve:
A vehicle and equipment replacement reserve is required for the funding of vehicle and equipment purchases. This reserve
helps to ensure funding is available when vehicles and equipment require replacement and eliminates the need to absorb
large expenditures in the operating budget in the year of replacement.
Capital Financing Reserve Fund:
A Capital Financing Reserve Fund is recommended to provide financing on capital projects that would otherwise be
financed through the issuance of debentures.
Land Acquisition Reserve Fund:
A Land Acquisition Reserve Fund is proposed to accumulate proceeds from the sale of land and density. This reserve fund
would be available to help finance the purchase of new properties or could be used for other purposes as Council may
direct.
Solid Waste Management Perpetual Care Reserve Fund:
A reserve fund for the long term obligations associated with the closure of landfill sites is required.
Waste Management Reserve:
A Waste Management Reserve is proposed for funding the net current and capital expenditures of solid waste disposal.
Winter Control Stabilization Reserve:
A winter control stabilization reserve is recommended to help fund winter control expenditures in years when such
expenditures exceed amounts budgeted. This reserve would be funded from winter control accounts in years of
under-expenditure and would help to stabilize the impact of adverse weather on the mill rate.
Building Maintenance Reserve Fund:
A Building Maintenance Reserve Fund is recommended for the consolidation of various reserves and reserve funds
originally established for the preservation and major repairs of municipal buildings.
City Parking Reserve Fund:
A City Parking Reserve Fund is required for municipal parking operations. The Municipal Act requires that a reserve fund
be established for the net revenue from the operation of all parking facilities operated on or behalf of the City but allows
Council to use the funds for other (non-parking) purposes after payment of debenture debt charges and capital expenditures
for additional parking lots or facilities.
Parking Payment In Lieu Reserve Fund:
A Parking Payment In Lieu Reserve Fund is required to accumulate those parking charges levied under provisions of the
Planning Act. Similar to the City Parking Reserve Fund, Council may choose to use funds collected under the Planning Act
for purposes other than parking.
Election Reserve Fund:
An Election Reserve Fund is recommended for the funding of municipal elections. Annual funding provisions for
municipal elections to this reserve fund eliminates the impact of large expenditures for this activity in election years and
helps to stabilize the mill rate.
Contingency Reserve:
A contingency reserve is proposed for the estimated costs of arbitrations and awards established by the former
municipalities.
Reserves for Program Surplus Allocation:
Three reserves were previously established by the Metropolitan Toronto Corporation for the allocation of surplus in
specific program areas. It is recommended that these reserves be continued.
Other Discretionary Reserves and Reserve Funds:
Each of the former municipalities have also established reserves and reserve funds for specific programs or facilities. It is
proposed that these reserves and reserve funds be continued during this transition phase of amalgamation.
Parkland Acquisition Reserve Fund:
The Planning Act provides that payments may be required from developers in lieu of a conveyance of land for parks
purposes. The Act restricts the use of these funds to parks or other public recreational purposes and requires that monies
collected be maintained in a separate account. The need to establish a new City wide Parkland Acquisition Reserve Fund as
of January 1, 1998 and the need to separately distinguish the December 31, 1997 balances by former municipality is being
addressed in a separate report to the Budget Committee.
Development Charges Reserve Funds:
Reserve funds are required under the Development Charges Act for development charges which are applied and collected
pursuant to various municipal bylaws. The charges fund the cost of infrastructure and are restricted under the Act to those
uses and geographic areas for which they were raised.
Scarborough Capital Levy Reserve Fund:
A Capital Levy Reserve Fund is recommended for funding capital projects previously approved by Scarborough City
Council. Funding of these capital projects in Scarborough has usually been in the year of expenditure rather than the year of
the levy.
Subdividers= Deposits Reserve Fund:
A reserve fund is required for deposits received from subdividers and developers in respect of obligations for the
construction of various infrastructure.
Restricted by Agreements with Third Parties:
Various reserve funds are required for funding obligations arising through third party agreements.
Donated Funds Designated for Specific Purposes:
Similar to reserve funds, which are established in response to third party agreements, four reserve funds are required for
donated monies which are designated for specific projects or programs.
Temporary Reserve Funds:
Three reserve funds are required for the sale of land or density where proceeds received is in the form of a promissory note
or a mortgage loan. As the note and loans mature and cash is received, funds will be allocated to the Land Acquisition
Reserve Fund and these temporary reserve funds will be discontinued.
Water Rate Stabilization Reserve:
A reserve is required to provide funding for the stabilization of water rates. The reserve helps to reduce the impact of
unusual increases in water expenditures and can be applied in the rationalization and implementation of a water rate
structure that is uniform throughout the City.
Water and Sewer Capital Expenditure Reserve Fund:
A reserve fund for capital expenditures is recommended to provide funding for watermains, storm and sanitary sewers and
water pollution control equipment and facilities. The availability of these reserve funds provides a capability to undertake
major infrastructure initiatives without an adverse impact on the water rate.
Parking Authority Capital Expenditure Reserve Fund:
A reserve fund is required for reserve funds of the Parking Authority. Similar to the City Parking Reserve Fund, the
Authority can apply any balance available in this reserve fund for the acquisition or improvement of additional parking lots
or facilities.
The Municipal Act provides that council may enact a bylaw to apply discretionary reserve monies to a purpose other than
that for which the fund was established. A bylaw will be prepared and submitted to Council giving effect to the
consolidation and continuance of reserve funds included in this report.
Conclusions:
N/A
Contact Name:
Ken Colley-416 395-6715
Shekhar Prasad-416 392-8095
(A copy of the City of Toronto Consolidation of Reserves and Reserve Funds as of January 1, 1998, is on file in the office
of the City Clerk.)
