city of revelstoke reserve policy

7/29/2019 City of Revelstoke Reserve Policy

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City of RevelstokeCouncil Report

Date: August 21, 2013

To: Mayor and Council

From: Graham Inglis, Director of Finance

Subject: Reserves and Surpluses Policy

1. ISSUE

The City does not have a formal Reserves Policy.

2. RECOMMENDATION

THAT Policy F-14, Reserves and Surpluses, be adopted as presented.

3. CAO COMMENTS

Agree with recommendation. This policy will provide guidance in achieving Councils 2013

Goals and Objectives to improve fiscal policies. TP

4. BACKGROUND

4.1. City Council has requested that a formal Reserves Policy be established.

4.2. A draft policy (F-14) is attached for Councils consideration.5. FINANCIAL IMPLICATIONS

5.1. The policy will provide guidance and direction in establishing reserve funds and this will

have an impact on the financial plan.

5.2. This impact is undetermined at this time.

6. DISCUSSION

6.1. Policies from several municipalities were reviewed before preparing the attached draft

which is a simplified and synthesized version of those other polices.

6.2. Included within the draft policy is a schedule (Schedule A) of current reserves and

reserve funds some of which are not supported by bylaws and are simply appropriations

of general revenue


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8.1. Recommendation:

THAT Policy F-14, Reserves and Surpluses, be adopted as presented.

8.2. Option 1: Council may choose to amend the draft policy before adoption.


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CITY OF REVELSTOKEPOLICY MANUAL

F-14 Page 1 of 3

Prepared By:Policy Title:

Reserve Funds and Surpluses

Approval Date:

Next Review Date:

1. Amendment Date:

2. Amendment Date:

Purpose:

1. To establish guidelines and targets for the maintenance of reserve funds andsurpluses to ensure the citys ongoing financial resilience.

Policy:

2. Guiding principles

The following principles form the basis for this policy::

Healthy reserve/surplus levels are important in achieving community goalsincluding financial health and stability;

Actual reserve/surplus balances need to be benchmarked with otherjurisdictions and with pre-determined targets on an ongoing basis to gauge

whether financial health is being achieved;

Reserve/surplus goals need to be consistent with and supportive ofrealistic longer- term financial plans;

Reserve/surplus appropriations need to conform to the statutory/legalrequirements of the Local Government Act and the Community Charter,generally accepted accounting principles (GAAP) and public sectoraccounting board (PSAB) recommendations

3. Categories

Reserves and surpluses may be categorized as follows:

Operating surpluses


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F-14 Page 2 of 3

4. Legislation

Reserve funds for a specified purpose must be established by bylaw in accordancewith Section 188 of the Community Charter.

5. Current reserves and surpluses

The citys current reserves and surplus fund accounts are shown in Schedule A. Theschedule shows the purpose for which the fund has been established, its source(s)of funding, minimum and optimum balance targets and the rationale for establishingthe fund.

6. Reserve Contributions

Annual and/or periodic contributions to Reserve Funds shall be specific to each

Reserve, as approved by council through the citys annual financial planning process.

7. Minimum and Optimal Reserve Balances

Minimum and optimal fund balance guidelines have been set for some of the citys Operating and Capital Reserve Funds, Unappropriated Surpluses and StatutoryReserve Funds as shown in attached Schedule A. The minimum balances ensurethat the respective balances are not depleted to the degree that those balances areno longer able to serve their intended purpose(s). The optimal balances ensure

that the citys guiding principles are achieved and that the respective balances donot grow beyond their intended purpose(s) and thus create idle funds that couldotherwise be utilized for other corporate priorities. A formal comparative review ofactual, minimum and optimal fund balances shall be undertaken annually.

8. Internal Borrowing

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

9. Responsibilities


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F-14 Page 3 of 3

comparing actual levels with the established minimum and optimal levels withinthis Policy and with other jurisdiction benchmarks, and reporting the results ofsuch a review to council;

Recommending changes to the minimum and optimal balance guidelinesshown in this Policy; and,

Recommending any revisions or amendments to this Policy, as may be requiredfrom time to time, as a result of changes in applicable statutes, accountingstandards, economic conditions, etc.

10. Interest

Operating/Capital Reserves Funds and Statutory Reserve Funds shall be paid andallocated interest based on average annual balances and the city s average rate of

return on investments.

11. Guide and Transition

The minimum and optimal fund balance guidelines shown in this Policy serve asa guide in moving the city towards the goals or targets it wishes to attain, interms of individual fund balances. It is recognized that the c i t y s fund balancesare not at the minimum or optimal levels at the time of enacting this Policy,however, the citys plan is to achieve its optimal targets over time.

Certified Correct:

________________________________

Tim Palmer


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RESERVE FUNDS AND

SURPLUSESPolicy F-14 Schedule A

A schedule outlining the types of reserves maintained by the city, their purposes, funding sources,

minimum and optimal balances and rationale.

City of Revelstoke


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1

Name Purpose Funding source(s) Minimum $

level

Optimum $ level Rational for $ levels established

Surpluses and appropriations of surplus

General

operating

reserve

ny municipal purpose

excluding water and sewer

General operating

fund1 X month's

operating

expenses

2 X month's

operating

expenses

To provide sufficient financial resilience

to withstand unforeseen expenditures

or reductions in revenue

Water

operating

reserve

Any purpose relating to water

expenditures

Water operating fund 1 X month's

operating

expenses

2 X month's

operating

expenses




Sewer

operating

reserve

Any purpose relating to sewer

expenditures

Sewer operating fund 1 X month's

operating

expenses

2 X month's

operating

expenses




Litigation

Reserve

An appropriation of general

operating surplus to provide

for outstanding claims.

Allocation from

general operating.

N/A Maximum amount

of likely liabilities

The city is sued on a regular basis for claims

that may or may not have the possibility of

success. A risk assessment should be made

at the time of each claim and the likely

financial impact should be calculated and

reserved.

Energy

Efficiency

Reserve

To provide for future energy

efficiency initiatives in city

owned facilities

Avoided carbon

credit purchases from

general operating

N/A N/A The funds generated will depend on the

amount of avoided carbon credit purchases

budgeted

Future

Capital Data

Processing

Reserve

An appropriation of general

operating surplus to provide

for the acquisition of

information technology (IT)

equipment.

Allocation from

general operating.

$0 $50,000 This is used as an equalization fund to offset

unexpected IT costs.

Taxation

Equalization

To alleviate the effects of

assessment appeals on

property tax revenues

Allocation from

general operating

$100,000 $200,000 This is used as an equalization fund to offset

reductions in property tax revenues as a

result of successful assessment appeals

which are falling within this range.


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level


Operating and Capital Reserves

Electric Utility

Reserve Fund

To provide funding for special

projects for general tax payers,

e.g. investments in RCFC and

RCEC

Interest and dividends can be

used as general revenue

Sale of Illecillewaet

Dam to BC hydro in

1970s.

Interest and

dividends on

investments

$1 million N/A The balance remaining in the fund is fully

invested in RCEC

Fire Capital

Replacement

Reserve Fund

To provide funding for fire hall

improvements, vehicles and

equipment replacement for

the Fire Department

Annual budgeted

allocation from

general operating

fund.

Sale of equipment.

Interest.

Average

expenditure

from fund

over previous

5 years

Adequate balance

to fund capital

acquisitions per

long term capital

plan

To provide sufficient funding for capital

replacement without long term borrowing

for apparatus. It is not anticipated that this

fund will be sufficient to replace the fire

hall.

RecreationCapital

Replacement

Reserve Fund

To provide funding for facilityimprovement and equipment

replacement for parks and

recreation.

Annual budgetedallocation from

General operating

fund.

Sale of equipment.

Interest.

Averageexpenditure

from fund

over previous

5 years

Adequate balanceto fund capital

acquisitions per

long term capital

plan

To provide sufficient funding for capitalreplacement without long term borrowing

for equipment. It is not anticipated that

this fund will be sufficient to replace

recreational buildings.

Cemetery

Capital

Replacement

Reserve Fund

To provide funding for

equipment and infrastructure

replacement at the cemetery

Annual budgeted

allocation from

general operating

fund.

Sale of equipment.Interest.

Average

expenditure

from fund

over previous

5 years

Adequate balance

to fund capital

acquisitions per

long term capital

plan

To provide sufficient funding for capital

replacement without long term borrowing

for equipment and infrastructure.

Building

Replacement

Reserve Fund

To provide funding for major

upgrades and renovations to

city buildings

Annual budgeted

allocation from

general operating

fund.

Interest.

Average

expenditure

from fund

over previous

5 years

Adequate balance

to fund capital

acquisitions per

long term capital

plan

To provide sufficient funding for planned

upgrades and improvements without the

need for long term borrowing. It is not

intended that this fund be used to acquire

or replace buildings.

Snow

Removal

To equalize the cost of snow

removal over successive years.

Allocation from

general operating

$150,000 $300,000 Minimum level was originally set by Council

some years ago. The maximum level


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level


Operating

Reserve Fund

equal to the budget

for snow removal less

actual expenditures.

represents a significant portion of the pre

financial year end part of the winter season.

Community

Centre

Operating

Reserve Fund

To subsidize the cost of

operating the Community

Centre

Interest. $200,000 $200,000 This fund was set up by the CSRD in the

1970s when the community centre was first

built. Although the time limit for

maintaining the fund has long past, the city

has not taken the balance into revenue and

has chosen instead to continue using the

interest to help offset operating costs.

Community

Forest Special

Reserve Fund

To incorporate and invest in

RCFC

Electric Utility

Reserve Fund

$0 $1,000,000 The maximum investment permitted under

Bylaw 1458 is $1 million.

Liability SelfInsurance

Reserve Fund

To provide a buffer forexcessive insurance claims and

deductibles.

Interest $40,000 N/A The citys MIA deductible is $10,000. Theannual general operating budget provides

for 2 claims at maximum deductible.

Police Station

Capital

Reserve Fund

To replace equipment and

carry out major building

upgrades or improvements.

Annual budgeted

allocation from

General operating

fund.

Interest.

$50,000 Adequate balance

to fund capital

acquisitions per

long term capital

plan

To provide sufficient funding for planned

upgrades and improvements without the

need for long term borrowing. It is not

intended that this fund be used to acquire

buildings.

Affordable

Housing

Reserve

To provide for future

affordable housing

Developer

contributions in

accordance with thebylaw

N/A N/A The funds generated will depend on the

level of development.

Water

Replacement

Reserve Fund

To provide for water utility

capital projects, water

equipment, studies, and water

debt retirement.

Annual budgeted

allocation from

Water operating

fund.

Interest.

Fully funded

water capital

programme

based on

existing

capital plan

Fully funded water

capital

replacement

programme based

on projected

replacement costs

for all assets

Borrowing should be avoided for

replacement of existing infrastructure.

Rates should be adjusted to provide

sufficient revenue to fund the reserve at the

appropriate level.


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level


Sewer

Replacement

Reserve Fund

To provide for sewer utility

capital projects, water

equipment, studies, and water

debt retirement.

Annual budgeted

allocation from sewer

operating fund.

Interest.

Fully funded

sewer capital

programme

based on

existing

capital plan

Fully funded sewer

capital

replacement

programme based

on projected

replacement costs

for all assets

Borrowing should be avoided for

replacement of existing infrastructure.

Rates should be adjusted to provide

sufficient revenue to fund the reserve at the

appropriate level.

Statutory Reserve Funds

Parkland

Cash-in-lieu

Reserve Fund

To purchase neighbourhood

parkland as permitted under

the Local Government Act

Developer cash

contributions as per

the requirement

under the Local

Government Actcash-in-lieu option.

Interest.

N/A Adequate balance

to fund parkland

acquisition per the

long term capital

and parks masterplans

Acquisitions are dependent upon

collections.

Equipment

Replacement

Reserve Fund

To replace vehicles and

equipment included in the

citys fleet.

Annual budgeted

allocation from

general, water and

sewer operating

funds.

Sale of equipment.

Interest.

$1 million Fully funded

equipment

replacement

programme.

The minimum level equals the annual level

of expenditure. The city leases most of its

vehicle and equipment replacements

through MFA over 5 years. Additional

funding will be required from the general

fund to revert to cash purchases in the short

term.

Future

Services

Upgrading

Reserve Fund

To provide for infrastructure

upgrades resulting from

development

Interest N/A N/A This is an old reserve fund that pre-dates

DCCs. There is little left in this fund.

Parking Stalls

Reserve Fund

To provide for additional

parking areas in the city

Developer cash

contributions in lieu

of providing required

parking per city bylaw


to provide for

required parking

as per the long

term capital plan

Parking lot development is dependent upon

collections.


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level


Development

Cost Charge

(DCC)

Reserve

Funds

Holding accounts for levies

from developers to be used for

approved DCC

projects/programmes.

DCC collections and

credits in accordance

with the bylaw.

Interest.

N/A Sufficient funds to

meet the need to

build

infrastructure

when required to

accommodate

growth.

Spending is dependent upon the actual

DCCs collected.

DCCs are really restricted revenues more

than reserves as the city has no discretion as

to how they are spent. They must be spent

on the projects outlined in the DCC bylaw.

Land Sale

Reserve Fund

To acquire land, improvements

and other assets of a capital

nature as per the Community

Charter.

Funds received from

the sale of land and

improvements.


to fund strategic

land acquisition

plan.

Acquisitions are dependent upon

land/property sales.

Community

Works (Gas

Tax) Fund

To be used pursuant to the

Community Works Agreement

administered by UBCM.

Federal Community

Works (Gas Tax)

funds distributed byUBCM.

N/A N/A The intent is to invest all funds received in

appropriate projects that benefit the

community.

Cemetery

Perpetual

Care Fund

To provide for the perpetual

care of the cemetery after

closure.

Care fund

contributions as per

bylaw.


to provide for

perpetual care of

cemetery after

closure.

Required by legislation.


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