Finance and Administration Report: Financial Policies Review
Review and recommended amendments to financial policies regarding reserves, surplus, and community amenity contributions.
TOWN OF VIEW ROYAL
Finance and Administration Report
TO: Committee of the Whole FROM: D. Christenson, Dir. of Finance DATE: October 4, 2021 MEETING: October 12, 2021
Financial Policies Review
RECOMMENDATION:
THAT the Committee recommend Council adopt revised Policy #1600-020 Reserves and Surplus and Community Amenity Contributions Reserve Bylaw 1080, 2021.
CHIEF ADMINISTRATIVE OFFICER’S COMMENTS:
I concur with the recommendation.
PURPOSE OF REPORT:
To consider proposed amendments to Policy #1600-020 Reserves and Surplus and adoption of a new reserve bylaw to reflect changes identified as a result of a financial policies review.
TIME CRITICAL:
A review of financial policies is one of the foundational steps in the financial planning process, as these policies influence and guide subsequent choices made throughout the budget development process.
BACKGROUND DISCUSSION:
Financial policies ensure proper fiscal accountability and stewardship over the Town’s funds. They ensure the financial plan is consistent with Council’s goals and objectives. To the extent that policies, principles, and practices are documented, they foster a common understanding of the process while increasing transparency.
Over time, Council has considered and approved several financial policies that guide the development of the financial plan, subsequent decisions, and annual financial outcomes. Where there are no stated policies, staff rely on past practice or Council direction.
The following table describes the sources and purpose of key financial policies and the date they were last updated. Where available, each approved policy document is hyperlinked to its location on the Town’s website for reference.
| Key Topic | Policy or Source | Description | Purpose | Last Update |
|---|---|---|---|---|
| Financial Assistance | 1600-012 | Grants in Aid | To provide financial assistance to non-for profit or community organizations that provide a public benefit | 2012 |
| 1600-018 | Permissive Tax Exemptions | 2012 | ||
| Expenditures | 1600-019 | Tangible Capital Assets | To identify specifics for the accounting of capital assets, including definitions, thresholds, and amortization parameters | 2012 |
| n/a | Asset Management Planning | To identify parameters for the development, maintenance and implementation of asset management plans, such as methodologies, strategies, and acceptable levels of service and risk | n/a | |
| Practice | Budget Variance Reporting | To specify guidelines for periodic financial reporting, such as frequency, report organization, level of detail, and comparative information | n/a | |
| n/a | Debt | To specify acceptable maximums or targets for total debt burden and debt service costs | n/a | |
| Revenues | 1600-020 | Reserves and Surplus | To guide the development, maintenance and use of financial reserve funds | 2020 |
| Practice | Revenue | To guide the management of revenue, including diversification targets, basis for fees and charges, and use of one-time or unpredictable revenues | n/a | |
| Council Direction | Taxation | To identify long-term property taxation strategies, including targets for assessment class multiples | annual | |
| Process | Practice | Financial Planning Process | To guide the development, maintenance and implementation of financial plans, including basis of budgeting, definitions of core and non-core items, and opportunities for public consultation | n/a |
DISCUSSION:
Since Council last reviewed its financial policies, staff have become aware of a need to consider amendments to the Reserves and Surplus policy (#1600-020) based on the following:
- At its May 7, 2019 meeting, Council adopted a Cash in Lieu of Parking Reserve Bylaw No. 1022, 2019.
- At its February 16, 2021 meeting, Council approved a revised Community Amenity Contributions policy (#6400-041) to clarify the requirements relating to cash amenities.
- At its February 19, 2020 meeting the Committee of the Whole directed staff to develop a Police Operating Reserve policy to guide future reserve contribution levels.
Each of these items will be discussed below with a recommendation for an amendment to the Reserves and Surplus policy (#1600-020).
Cash in Lieu of Parking Reserve
The Reserves and Surplus policy should include a reference to the Cash in Lieu of Parking Reserve to provide the framework for managing this reserve in the same manner as other similar reserves. The following amendments to the Reserves and Surplus policy are recommended:
Add a new section 2.8 under Section 2 Capital Reserve Funds:
2.8 Cash in Lieu of Parking Reserve
The Cash in Lieu of Parking reserve has been established to fund off-street parking spaces or transportation infrastructure that supports walking, bicycling, public transit or other alternative forms of transportation.
Add a new section in Appendix A to identify the purpose, funding sources, minimum and optimum reserve levels. Because this reserve is tied specifically to payments received in lieu of parking spaces under Zoning Bylaw No. 900, 2014, minimum and optimum reserve levels are not identified. Listing a budget allocation as a source of funding allows for the possibility that Council may at some time in the future choose to voluntarily contribute funds to this reserve.
| Fund(s) | Purpose | Funding Source(s) | Minimum $ Level | Optimum $ Level |
|---|---|---|---|---|
| Cash in Lieu of Parking Reserve | To fund off-street parking spaces or transportation infrastructure that supports walking, bicycling, public transit or other alternative forms of transportation. | • Proceeds from payments in lieu of parking • Allocation from general operating budget as provided for in financial plan |
N/A | N/A |
Attachment A Revised 1600-020 – Reserves and Surplus Policy and its Appendix A reflect the amendment described above in red text.
Community Amenity Contributions Reserve
The revised Community Amenity Contributions policy (#6400-041) suggests the need for establishment of a specific reserve to support the elements of the policy that relate to receiving cash community amenity contributions (CACs). The policy identifies cash amenities as voluntary contributions by a development proponent for the purpose of providing “any public benefit, improvement or contribution that can enhance the quality of life for a community”. Draft Bylaw 1080 (Attachment B), if adopted, would establish a reserve to manage cash community amenity contributions.
The current Reserves and Surplus policy was revised in February 2021 to align with the previous Community Amenity Contributions policy. Under the previous policy, cash CACs were to be administered under an agreement between View Royal and the developer, giving rise to the need for a deferred revenue reserve account. With this policy element removed, Council has the discretion to use CACs for any purpose that meets the definition of a community amenity. Accordingly, the following amendments to the Reserves and Surplus policy are recommended:
Add a new section 3.1 under a new reserve fund category for multi-purpose reserve funds that envisions uses for either capital or operating purposes, and renumber subsequent sections:
3.0 MULTI-PURPOSE RESERVE FUNDS
3.1 Community Amenity Contributions Reserve
The Community Amenity Contributions reserve has been established to fund any capital asset or service that provides public benefit, improvement or contribution that can enhance the quality of life for a community.
Add a new section in Appendix A to identify the purpose, funding sources, minimum and optimum reserve levels. Because this reserve is tied specifically to payments received as community amenities under Policy #6400-041, minimum and optimum reserve levels are not identified.
| Fund(s) | Purpose | Funding Source(s) | Minimum $ Level | Optimum $ Level |
|---|---|---|---|---|
| Community Amenity Contributions Reserve | To fund any capital asset or service that provides public benefit, improvement or contribution that can enhance the quality of life for a community. | • Cash Community Amenity Contributions | N/A | N/A |
Attachment A Revised 1600-020 – Reserves and Surplus Policy and its Appendix A reflect the amendment described above in red text.
Attachment B Draft Bylaw 1080 Community Amenity Contributions Reserve is proposed to support the Community Amenity Contributions Reserve policy (#6400-041).
Police Operating Reserve
View Royal’s agreement with the province requires View Royal to pay 90% of RCMP actual contract costs after its population reaches 15,000. View Royal currently pays 70% of RCMP costs, pooled with other like municipalities. The Police Operating Reserve offers a means to soften, or phase in, what could be a significant increase. The following amendment would provide clarification around how annual reserve contributions should be determined. It also confirms the current practice of contributing any excess of revenue to the reserve, which may be significant when the RCMP is unable to fill budgeted personnel positions in any given year.
1.2 Special Policing Operating Reserve Fund
The Special Policing Operating Reserve has been established to fund the payment of future police operating costs. When the Town reaches a population of 15,000 it will be responsible for 90% of the RCMP actual costs of providing the Municipal Police unit in the municipality. Additional officers may also be required to meet policing strength targets.
The following factors should be considered when projecting annual reserve contributions and optimal reserve levels:
- Projected number of years remaining before View Royal’s population reaches 15,000
- Anticipated annual RCMP contract cost increases, prior to inflation
- Projected inflation rates
- Cost increases related to maintaining policing personnel strength targets
- Number of fiscal years (budget cycles) to be supplemented by reserve draws to phase in policing costs at the 90% level
At a minimum, the annual contribution to this reserve should be the excess of policing-related revenue, including the amount of taxation allocated to policing operations, over total policing operational expense.
Attachment A Revised 1600-020 – Reserves and Surplus Policy shows the amendment described above in red text. Appendix A to the policy currently reflects the core concepts stated in the proposed policy amendment; therefore, no revision to the appendix for this reserve is recommended.
BUDGET IMPLICATIONS:
Staff refer to financial policies, Council direction and past policies when making choices in developing the five-year financial plan. Written policies provide clarity and are more transparent to the public. Council should identity which, if any, policies or practices they wish to further review.
RECOMMENDATION:
THAT the Committee recommend Council adopt revised Policy #1600-020 Reserves and Surplus and Community Amenity Contributions Reserve Bylaw 1080, 2021.
SUBMITTED BY: D. Christenson, Director of Finance
REVIEWED BY: K. Anema, Chief Administrative Officer
Attachment A: Draft REVISED 1600-020 Reserves and Surplus Policy and Appendix– red-lined Attachment B: Draft Community Amenity Contributions Reserve Bylaw 1080