Committee of the Whole/Documents/Draft POLICY MANUAL: Reserve and Surplus

Appendix

Draft POLICY MANUAL: Reserve and Surplus

June 14, 2016Pages 45–496 sections

Draft policy document defining various reserve categories and their administrative procedures.

Effective date: immediatelyReview schedule: 3 years

POLICY MANUAL

Policy Statement:

It is essential that local governments maintain adequate levels of reserve balances to mitigate current and future risks, ensure stable tax rates and demonstrate financial commitment to long range infrastructure and master plans. The following guiding principles form the basis of this Policy:

Sufficient reserve funds are important in achieving financial health and stability for the Town of View Royal.
Reserve goals need to be consistent with and supportive of established long term financial plans.
Reserve fund management needs to conform to the statutory and legal requirements of the Local Government Act and the Community Charter, generally accepted accounting principles (GAAP) and public sector accounting board (PSAB) recommendations.

Purpose:

To provide guidance on the development, maintenance and use of financial reserve funds.

Policy Procedure:

Definitions

The following terms are used in this Policy and are defined as follows:

**“Annual Surplus”** means the accumulated excess of revenues over expenditures for the current year.

“Reserve Funds” means funds that are set aside for a specified purpose by Council pursuant to subsection 188 (1) of the Community Charter. These reserves are established via Town bylaws and are discretionary on the part of Council. The reserve funds can be operating or capital in nature.

“Reserves” means all of the Town’s Reserve Funds and Statutory Reserve Funds.

“Statutory Reserve Funds” means funds set aside for specified purposes as required by and pursuant to specific legislation. These reserves are established via Town bylaws and are non-discretionary on the part of Council.

“Unappropriated Surplus” means the accumulated surplus built up in the Town’s various operating funds that has not been designated for specific uses.

“Reserve Accounts” means appropriations of surplus designated by Council for specific uses. These accounts can be established or dissolved as Council directs.

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SECTION 1 – RESERVES FUNDS

Operating Reserve Funds:

1.1 Reserve for Future Expenditures

The Reserve for future expenditures has been established for the following purposes:

For One-time and Intermittent Projects – The Town undertakes certain one time and/or intermittent projects that are larger in terms of costs. If these projects were funded from property taxation, annual spikes and declines in taxation would result, therefore, it is not prudent to fund these projects from on-going property taxation revenue. Examples include neighborhood plans and maintenance work not capital in nature.

To Offset Unrealized Revenues – Some of the Town’s revenue sources, (i.e. development fees, building permits), are cyclical in nature and thus are subject to downturns in the economy. The Town tries to anticipate economic downturns during budget processes but despite best efforts may be exposed to the possibility of unrealized or declining revenues.

1.2 Special Police Operational Reserve Fund

The Special Police Operational 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 within the foreseeable future.

Capital Reserve Funds:

1.3 Capital Works and Land Acquisition Reserve

The Capital Reserve has been established to fund one-time general capital projects and new equipment that are not specifically funded from other established Reserves.

1.4 Capital Renewal Reserve

The Capital Renewal Reserve has been established to provide for expenditures associated with the rehabilitation, renewal or replacement of existing capital infrastructure such as roads, including sidewalks and related infrastructure, storm drains and facilities.

1.5 Park Improvement Reserve

The Park Improvement Reserve has been established to provide for expenditures associated with park improvements, including playground and equipment required to maintain parks that are not part of the Town’s fleet.

1.6 Machinery & Equipment Depreciation Reserve

The Machinery & Equipment Depreciation Reserve has been established to fund replacement of licenced municipal vehicles and equipment included in the Town’s fleet (excluding fire).

1.7 Fire Department Machinery and Equipment Depreciation Reserve

The Fire Department Machinery and Equipment Depreciation Reserve has been established to fund replacement of Fire vehicles and equipment.

1.8 Sewerage System Capital Reserve

The purpose of the Sewerage System Capital Reserve is to fund sewer utility capital projects including any equipment/systems required for sewer operations required for sewer operations.

1.9 Police Equipment, Property and Contract Reserve Fund

The purpose of the Police Equipment, Property and Contract Reserve is to assist in meeting the capital/contract costs that will be incurred when the Town of View Royal is required to assume responsibility for policing.

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SECTION 2 – STATUTORY RESERVE FUNDS

2.1 Development Cost Charge (DCC) Reserve Funds

Per subsection 188 (2) (a) of the *Community Charter*, separate Reserves need to be established for DCC collections and use, under section 935 of the *Local Government Act*. The following DCC Reserves have been established for the purpose so identified in the associated DCC bylaws and are as follows:

Roads DCC
Drainage DCC
Parks DCC
Water DCC

2.2 Park and Open Space Reserve Fund

Per subsection 188 (2) (b) of the *Community Charter*, funds received from the sale or disposal of parkland as well as funds received pursuant to section 941 of the *Local Government Act* (parkland funds received upon subdivision) must be set aside in a Reserve and be used exclusively to purchase parkland. The Parkland Acquisition Reserve has been established for accumulating and expending monies as per this requirement.

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SECTION 3 – UNAPPROPRIATED SURPLUSES

The Town needs to maintain Unappropriated Surplus balances in its two operating funds (the General Operating Fund and the Sewer Operating Fund), for working capital purposes i.e. to provide for operating expenditures before property taxes or user fees are collected. Maintaining minimum working capital levels eliminates or reduces the need to borrow externally and/or internally for operations.

The Town may also require emergency funds from time to time, from any one of its Unappropriated Surplus balances, for unforeseen costs. When this occurs, the Town needs to rely upon sufficient balances being available in the applicable Unappropriated Surplus area (general operating or sewer).

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SECTION 4 – RESERVE ACCOUNTS (APPROPRIATED SURPLUS)

4.1 Community Works Gas Tax Reserve Account

The purpose of the Community Works Gas Tax Reserve is to account for funds received and used pursuant to the Community Works Gas Tax Agreement. Projects funded by this account must be in compliance with acceptable uses as defined in the Community Works Gas Tax Agreement. The intent is to spend all funds received, per the Community Works Gas Tax Agreement.

4.2 Casino Grant Reserve Account

The purpose of the Casino Grant Reserve is to account for funds received and used pursuant to the Casino Fund Agreement. Casino funds can be used for any municipal purpose. The intent is to spend all funds received, per the Casino Fund Agreement. The Town’s intent is to use Casino Funds for one-time capital expenditures, debt repayments and for building capital reserves to optimal levels.

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SECTION 5 – ADMINISTRATION

5.1 Reserve Contributions

Annual and/or periodic contributions to Reserve Funds shall be specific to each Reserve, as approved by Council through the Town’s annual financial planning and budgeting process.

5.2 Minimum and Optimum Reserve Balances

Minimum and Optimum fund balance guidelines have been set for some of the Town’s Funds, Statutory Reserve Funds and Unappropriated Surpluses. The minimum balances ensure that the respective balances are not depleted to the degree that those balances are no longer able to serve their intended purpose(s). The Optimum balances ensure that the Town’s guiding principles are achieved and that the respective balances do not grow beyond their intended purpose(s) and thus create idle assets that could be otherwise utilized for other corporate priorities. A formal comparative review of actual, minimum and optimal fund balances shall be undertaken annually. If balances in any reserve fund fall below the minimum level a strategy must be outlined to replenish the fund within a 3 year period.

5.3 Internal Borrowing

Internal borrowing from specific Reserve Fund, Unappropriated Surplus and Statutory Reserve Fund balances shall be permissible as allowed for by legislation, if a clearly defined and attainable payback plan, including payment of foregone interest, is in place. Internal borrowing allows for more flexibility in terms of payback amounts and loan duration than that of external borrowing. Paybacks shall be executed according to plan.

5.4 Responsibilities

The Town's Financial Officer shall be responsible for: * Recommending the necessary contributions and transfers so that the Town's Reserve Funds, Statutory Reserve Funds and Unappropriated Surpluses are maintained in accordance with this Policy * Conduct an annual review of all Reserve Fund, Statutory Reserve Fund and Unappropriated Surplus balances and reporting the results of such a review to Council; * Recommending any revisions or amendments to this Policy, as may be required from time to time, as a result in changes in applicable statutes, accounting standards, economic conditions, etc.

5.5 Interest

Reserve Funds and Statutory Reserve Funds shall be paid and allocated interest based on average annual balances and the Town's average rate of return on investments.

5.6 Guide and Transition

The minimum and optimal fund balance guidelines shown in this Policy serve as a guide in moving the Town towards the goals or targets it wishes to attain, in terms of individual fund balances. It is recognized that the Town's fund balances are not at the minimum or optimal levels at the time of enacting this Policy, however, the Town is transitioning towards its optimal targets.

Previous Revisions:

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Extracted from: 2016 06 14 Committee of the Whole Agenda