Review of Reserve Funds and Surplus

Prepared by Brenda Warner & Associates Ltd
May 3, 2016

EXECUTIVE SUMMARY

PURPOSE

The purpose of this report is to outline results of the Reserve and Surplus review, and to present a draft Reserve and Surplus Policy for Council consideration.

BACKGROUND:

One of the Town's 2015-2018 Strategic Priorities is to compete a comprehensive asset plan. Part of the process of developing that plan includes development of a Surplus policy and a Reserve Funds review. To this end, a review of the Town's existing reserve funds and surplus was initiated. This review included determining whether the purpose of each reserve fund was still relevant, if changes were needed, and to develop target balances for each reserve and for unappropriated surplus.

Policies reflect organizational values, they require an effort to look ahead, and understand the effect of competing objectives, and always include an element of “choice”. The intent of this report is to provide guidance and recommendations based on a review of best practices and experience of other municipalities. There is no single right answer, our intent is to make recommendations that will assist the municipality in development of a Reserve and Surplus policy that will form an integral part of its comprehensive asset plan.

It is important to recognize that the Reserve Funds policy can be refined in the future the comprehensive asset plan is developed.

SUMMARY OF FINDINGS

Based on the findings of this review, the purposes for the majority of the reserves are still relevant. However in order to reduce complexity and administrative burden, and to improve clarity, funds with similar purposes can be combined, and those with redundant or outdated purposes eliminated.

The Town currently has twelve active reserve funds (excluding DCCs). The review recommends retention of seven, elimination of five, and establishment of three new reserves.

Reserves to be retained:

1. Capital Works and Land Acquisition
2. Special Police Operational Reserve
3. Machinery & Equipment Depreciation Reserve
4. Fire Department Machinery and Equipment Depreciation Reserve
5. Sewerage System Capital
6. Police Equipment, Property and Contract
7. Parks & Open Space

Reserves to be eliminated

1. Parks & Recreation Equipment
2. Municipal Roads Capital
3. Roads Trust
4. Tax Sale Land
5. Sewerage system Equipment Replacement

New Reserves recommended

1. Reserve for Future Expenditures
2. Capital Renewal Reserve
3. Park Improvement Reserve

The Town has two funds that to date have been recorded as deferred revenue for financial statement purposes - Casino Funds and Community Works Gas Tax. The Town could either establish these as Reserve Funds or treat as Reserve Accounts. A Reserve Fund requires a bylaw and would earn interest, a Reserve Account is simply an appropriation of surplus. Since there is no clear advantage or necessity to have a separate reserve fund, it is recommended that they be set up as Reserve Accounts.

The Town also has unappropriated surplus balances in both the General and Operating funds, that are included in the Reserve and Surplus Policy.

A methodology for target balances for reserves and unappropriated surplus has been included in the Reserves and Surplus Policy Appendix A. It is not possible to determine actual target balances for all reserves until asset master plans are completed and the comprehensive asset plan is developed. However, it is possible to establish a methodology, which can be reviewed as the Town completes steps in development of its asset management strategy. The minimum and optimal levels in Appendix A to the Policy were developed based on a best practices, review of other municipal reserve and surplus policies, and discussion with staff.

SUMMARY

A copy of the Review of Reserve Funds and Surplus Report prepared by Brenda Warner & Associates is attached as background. It outlines a number of recommendations which can be addressed, as appropriate, once a Reserve and Surplus Policy is approved.

The report also recommends that when developing its long term capital funding strategy, the Town considers:

• Transferring a proportion of annual new assessment revenue to the Capital Renewal Reserve
• Introducing a Capital Levy
• Transitioning away from using Casino Revenue to fund annual operating and capital maintenance, replacement and renewal programs

The first step, however is to approve a Reserve and Surplus Policy.

A draft Reserves and Surplus Policy, and Appendix detailing Minimum and Optimum levels is attached for Council's review and consideration.

RECOMMENDATIONS

That Council:

1. Establish the following Reserve Funds a) Reserve for Future Expenditures b) Capital Renewal Reserve c) Parks Improvement Reserve
2. Approve the Reserve and Surplus Policy
3. Approve Appendix A of the Reserve and Surplus Policy

Respectfully submitted,

Brenda Warner & Associates